The SaaS Finance Glossary

Software that runs the collections workflow for B2B invoices with minimal manual effort: it monitors invoice status, detects failed or late payments, triggers recovery and dunning sequences, prioritizes which accounts to pursue, and keeps the AR subledger aligned with cash receipts. Automation that adapts timing and escalation to each customer’s payment history tends to recover more than a single fixed schedule applied to every account.

Measures how efficiently a company collects payment from its customers by comparing net credit sales to average accounts receivable. A higher ratio indicates faster collection. In SaaS, it reveals how well the billing and collections process converts invoiced revenue into cash.

AR Turnover = net credit sales / average accounts receivable

Revenue that has been earned by delivering goods or services but has not yet been invoiced or collected. In SaaS, accrued revenue occurs when a company delivers service before billing. It is the mirror image of deferred revenue, where payment arrives before delivery.

The annualized value of a company’s committed recurring subscription revenue. ARR usually excludes one-time fees, professional services, and purely variable usage, which makes it a standard metric for investor reporting, valuation, and annual planning.

ARR = MRR x 12

The revenue movements that explain how Annual Recurring Revenue changes over time: beginning ARR, new ARR, expansion ARR, contraction ARR, reactivation ARR, and churned ARR. Splitting ARR this way reveals the quality of growth, not just the net change.

The accounting standard, formally titled Revenue from Contracts with Customers, that governs how and when companies recognize revenue. It requires revenue to be recognized when control of goods or services transfers to the customer, following a five-step model. For SaaS, ASC 606 determines how subscription revenue, implementation fees, and multi-element arrangements are recognized over time.

The speed at which a company spends its cash reserves, typically measured as net cash outflow per month. In SaaS, burn rate determines runway, the number of months a company can keep operating before it runs out of cash, which makes it the most watched metric at pre-profit startups.

Monthly Burn Rate = cash spent minus cash received, per month

The total cost of acquiring a new customer, calculated by dividing total sales and marketing spend by the number of new customers acquired in a period. CAC is one of the most critical SaaS unit-economics metrics because it determines how efficiently a company converts spend into paying customers.

CAC = total sales and marketing spend / new customers acquired

The number of months it takes for a customer’s gross profit to repay the cost of acquiring them. In SaaS, a payback period under 12 months is considered efficient, meaning the company recovers its acquisition investment within the first year and every month after that contributes profit.

CAC Payback = CAC / (monthly recurring revenue per customer x gross margin)

The percentage of customers or revenue lost over a given period. In SaaS, churn rate is the inverse of retention: a 5% monthly customer churn means the company loses 5% of its customer base each month. Reducing churn is the single most effective lever for improving LTV, NRR, and long-term revenue growth.

Customer Churn Rate = customers lost in period / customers at start of period

The monthly value of contracted or committed recurring revenue. In SaaS, CMRR captures subscription revenue that customers are obligated to pay, which makes it more useful than basic MRR when contract start dates, onboarding delays, or committed minimums leave plain MRR incomplete.

The total top-line revenue a company expects to earn from a customer across the full relationship. Unlike customer lifetime value, CLR does not subtract service costs or gross margin, so it measures revenue contribution rather than profit contribution.

Payment received for goods or services that have not yet been delivered, recorded as a liability on the balance sheet until the obligation is fulfilled. In SaaS, deferred revenue arises when a customer pays upfront for an annual subscription but the service is delivered monthly across 12 months. Each month, a portion moves from the liability into recognized revenue.

The process of communicating with customers to collect overdue payments, including automated email sequences, payment retry logic, and escalation workflows. In SaaS, dunning prevents involuntary churn caused by failed card charges, expired payment methods, and billing errors, recovering revenue that would otherwise be lost without the customer ever deciding to cancel.

The percentage of recurring revenue retained from existing customers over a period, excluding any expansion revenue. GRR can never exceed 100%, and it reflects the core stickiness of a product: how much revenue stays put without upsells compensating for losses.

GRR = (starting recurring revenue minus contraction minus churn) / starting recurring revenue

The total gross profit a company expects to earn from a single customer over the entire relationship. LTV combines average revenue per user, gross margin, and churn rate to quantify the long-term economic value of each customer.

LTV = (average revenue per account x gross margin) / churn rate

Compares Customer Lifetime Value to Customer Acquisition Cost, measuring how much long-term value each acquisition dollar generates. A ratio of 3:1 or higher is the standard SaaS benchmark, meaning every dollar spent on acquisition returns at least three dollars in gross profit over the customer’s lifetime. A ratio far above that can signal underinvestment in growth.

LTV:CAC = LTV / CAC

The predictable revenue a company earns each month from active subscriptions. MRR normalizes different billing periods, whether annual, quarterly, or monthly, into one consistent monthly figure, which makes it the foundational metric for SaaS financial planning.

MRR = sum of all normalized monthly subscription values

The amount or rate of monthly recurring revenue lost from cancellations and downgrades during a period. SaaS teams use MRR churn to understand how much recurring revenue is leaking from the customer base, either before or after accounting for expansion.

Tracks how monthly recurring revenue changes over time for a specific group of customers that share a starting period or characteristic. In SaaS, it surfaces retention, expansion, and churn trends that aggregate MRR reporting can hide, because a healthy total can mask a weak recent cohort.

The percentage change in revenue from existing customers over a period, accounting for expansion, contraction, and churn. NDR above 100% indicates that revenue growth from upsells and cross-sells exceeds revenue lost from downgrades and cancellations. In practice, NDR and NRR are used interchangeably by most teams.

The percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn. An NRR above 100% means a company is growing revenue from its existing customer base without acquiring a single new customer, which is the clearest signal of durable, capital-efficient growth.

NRR = (starting recurring revenue + expansion minus contraction minus churn) / starting recurring revenue

How much recurring revenue a company loses from downgrades and cancellations during a period. It is often expressed as lost MRR or ARR, or as a percentage of starting recurring revenue, and it is more financially meaningful than customer churn alone because it weights each account by its value.

A SaaS performance benchmark stating that a healthy software company’s combined revenue growth rate and profit margin should equal or exceed 40%. It balances growth against profitability: a company growing at 60% with a negative 20% margin passes, and so does a company growing at 10% with a 30% margin.

Rule of 40 = revenue growth rate (%) + profit margin (%)

An annualized projection of future revenue based on current period performance, typically calculated by multiplying the most recent month’s revenue by 12. It gives a forward-looking estimate of annual revenue if current conditions hold. Run rate is a projection, not a guarantee, and it distorts badly when revenue is seasonal or growing fast.

Run Rate = most recent month’s revenue x 12

The total value of contracts signed in a given period, including recurring subscriptions, one-time fees, services, and other committed transaction value. In SaaS, bookings are a sales momentum metric, not the same as billings, recognized revenue, or ARR. A booking becomes revenue only as the service is delivered.