In this article, I will list some key SaaS terms sales teams, business owners and any marketing team should know. I’ll try to include the most important terms so you can use this article as your glossary when you’re reading a blog post or an e-book.
Without further ado, let’s start.
Annual Run Rate Revenue (ARRR): ARRR is ARR plus income that isn’t assigned to a recurring subscription. Professional services or implementation costs may be included.
Average Customer Life (ACL): The duration of the relationship between a customer and the company. Basically, the average number of days (or months) between the second a prospect becomes a customer and when the customer stops purchasing a service (or churns. Check churn to learn what it means.)
Annual Contract Value (ACV): is an average annual value from each contract. It’s basically your revenue per contract. If your company charges fees, whether it’s one-time fees or recurring fees, it might affect your ACV. For example, if you charge for signup fees, your first ACV would be higher than next years’ ACVs.
App Integration: App integration or just integration refers to the connection between different systems/software/platforms, allowing users to connect their existing data with multiple systems. For example, if you already have a contact list of thousands of people, it makes no sense to create a new list for all the software you use. App integration allows you to use the existing contact list with different software such as email marketing and leads management systems.
Average Selling Price (ASP): The amount of revenue per customer provides.
Average Revenue Per User (ARPU): ARPU stands for average monthly revenue recognized per user.
Break-even: It happens when the revenue generated by the customer is equal to all the money the company spent to acquire that customer.
Bookings: Bookings are the total contract worth, which is especially useful for providers offering lead generating apps and provides a fair idea of how the service is working for its clients. The bookings number helps determine the number of customers signing up during a specified period of time.
Burn Rate: The burn rate is the monthly pace at which a firm burns its cash (typically venture money) before turning a profit.
BYOC: Like Bring Your Own Device (employees use their own devices), Bring Your Own Cloud refers to using 3rd party cloud apps for specific purposes instead of solely relying on a company’s IT resources. For example, employees use Google Drive or Dropbox for sharing files and MailChimp for email marketing.
Contextual Engagement: The right customer + the right messages + at the right time + the right way = Contextual Engagement. It basically means providing the customer base with the right thing at the right time while understanding their expectations and anticipating the potential outcomes.
Cloud Computing: SaaS (Software as a Service) is a part of cloud computing, which means computing over the internet. Cloud computing has been around since the early 2000s. It uses remote servers to store, process, and manage data and allows service providers to offer computing services such as storage, applications, and raw processing on the internet.
So instead of buying servers and developing their own IT infrastructure, users can subscribe/purchase the said services from providers and pay on a monthly/quarterly/annual etc. basis. Nowadays, many companies prefer cloud computing and offer their apps as a service on the internet instead of one-time installable products.
There are some advantages of cloud computing as well as disadvantages. Just like SaaS, cloud computing allows the providers to have less control over processes and costs more in the long run.
Cloud computing is popular among users because users pay for the SaaS services they want to use, and they decide the time when they use services, so they don’t have to deal with complex processes themselves. Cloud computing has evolved for years and now includes a variety of services. Storage, raw processing, networking, natural language processing, AI, office apps, CRMs, computer-aided design, and many more services are included in cloud computing. For example, some of the most popular consumer-level examples of cloud computing include Spotify, Google Apps, Office 365, and Netflix.
But why call it “cloud” computing? Well, since the user doesn’t care about the location of the server, hardware, and OS that are used to provide the service, it’s all in the clouds.
Jokes aside, the term ‘cloud’ isn’t that new; on the contrary, it was used in old telecommunication network schematics to refer to the underlying technologies that didn’t concern the users at all.
Customer Acquisition Cost (CAC): CAC is the average amount spent by a company to acquire one customer. CAC covers all customer acquisition costs, including sales and marketing expenses and salaries of the employees. To calculate CAC, Divide the customer acquisition costs by the number of customers acquired in the same period.
Customer Behavior Index (CBI): This metric measures the engagement rate of your prospects and customers by analyzing their in-app activity and usage.
Customer Retention Cost: Customer retention costs include the renewals team, professional services team, customer marketing, and other expenses.
Churn: When the customers don’t renew their monthly subscription to a service or cancel, they churn.
Churn Rate (or customer churn rate): A percentage of the number of customers a company loses due to churn. You can calculate the churn rate by dividing the number of churned customers by the number of customers at the start of the period you want to calculate the churn rate for. For example, a 10% churn rate means 20 out of 200 subscribers have canceled or failed to renew their subscription in the said time period.
Cloud Bursting: Cloud-bursting allows businesses to use the provider’s system when their own IT infrastructure reaches the maximum utilization level. Cloud bursting helps businesses effectively and efficiently deal with ‘bursts’ or excessive workloads and seasonal usage spikes.
Cloud Portability: The ability to move data and apps from a locally-hosted environment to the cloud or between different cloud services providers. Cloud portable apps mean the users are not locked up with any particular provider and can easily move their data.
Cloud Spanning: Also known as cloud storming, cloud spanning refers to the interlinking of different cloud services together, either with the same provider or between different providers.
Cloud Sourcing: Cloud Sourcing is a combination of cloud computing and outsourcing, which refers to the outsourcing of specific business functions to a provider.
Cloudware: It’s another name for cloud software or apps that run over the internet.
Cohorts: A group of customers who signed up at the same time or went through the same onboarding process.
Committed Monthly Recurring Revenue: MRR forecasting for the future, considering expected account growth and churn.
Contracted Monthly Recurring Revenue: MRR that is guaranteed by contract.
Customer Engagement Touchpoint (or Customer Engagement Interaction): That one moment when a prospect or customer comes in contact with your brand, company, employees, product, or message through various channels and devices. For example: When someone sees an ad for your app on Facebook.
Customer Experience (CX): The whole experience a customer has while using a product and their perception of the brand, company, or product. It also covers all the interactions the customer has with the brand and product.
Customer Experience Era: Also referred to as the third wave of SaaS, where customers evaluate and share their experiences using a product and how they feel about the experience. In this era, providing a good customer experience and customer service became crucial for any SaaS business.
Customer Experience Strategy: The process of managing customer experiences in the customer lifecycle to improve the experience of the customers. Companies can have different customer experience strategies for the short and long term; however, overall, it’s an ongoing process.
Customer Journey: Starts from the second a customer interacts with a product and covers all the all touchpoints the said customer has with a company, brand, and product. The customer journey doesn’t end with the purchase; it also covers the customer’s acts related to the company and product, such as recommending it to others or repurchasing.
Customer Lifecycle:A framework that outlines a customer’s decision-making, purchasing, utilizing, and advocating for a product or service. Acquisition, adoption, retention, and growth are the four crucial stages of a customer’s lifecycle.
Customer Lifetime Value (CLV): A forecast of the net profit attributable to a customer’s complete future relationship. It is the earnings provided by consumers between the time the company hits break-even point with them and the termination of the relationship.
Customer Onboarding: Training, account and team member setup, and integration support are all part of the process of getting a newly subscribed client (or account) up and running with your product. The objective is to get the consumer to understand the entire value of your product, retaining customers while also developing business inside the account or generating recommendations from satisfied customers.
Customer Retention Rate: From the beginning to the conclusion of the term, how many clients are retained, excluding new consumers.
Customer Satisfaction Metrics: This shows how engaged your consumers are, how much value they get out of your offering, and whether or not they will recommend your solution to their friends. Consumer satisfaction represents how a customer views your organization, brand, and product in terms of value and experience. Net Promoter Score (NPS), Customer Behavior Index (CBI), and Customer Lifetime Value are a few examples of metrics in this area (CLV).
DaaS: Desktop as a Service allows users to operate desktop OSs, which are hosted within virtual machines. Users can easily access an OS instance using their own computers, but things aren’t perfectly standardized in this business, and many providers offer their own form of DaaS.
Days to Break-Even: The average number of days it takes a client to produce enough money to pay the CAC is measured by the Days to Break-Even. In other words, it demonstrates how rapidly a company’s CAC recovers.
Days from PQL to Customer: Measures the average number of days it takes a PQL to become a customer.
Days from Signup to Customer: Measures the average number of days for a PQL to become a customer.
Days from Signup to PQL: Measures how long it takes a prospect to become a PQL.
Deferred Revenue: The terms “revenue” and “cash” are not interchangeable. Cash can be collected in advance, but it is not considered income until it is generated.
Digital Transformation: The impact of digital technology on all facets of human civilization.
Dunning: Dunning means “To make persistent demands for the payment of a debt,” according to the technical definition of Dunning in Investopedia. In the context of SaaS, it often refers to emails sent to users after their payment has run out.
Engagement Loop: A method of persuading prospects and customers to re-engage with a product and gain additional value by combining insightful in-product use data with engagement methods.
Free Trial: A customer acquisition approach in which prospects are given a partial or complete product for free for a limited period. A free trial usually lasts 14 or 30 days.
Freemium: A customer acquisition method that gives prospects free access to a portion of a software product for an indefinite period. A freemium product does not limit the length of time a prospect may use the program, but it frequently restricts users in some way, such as by limited functionality or the amount of time they are permitted to use it.
Geography in cloud computing: While many believe geography is irrelevant in the cloud computing business, it actually does matter. If the servers are located far away from where most users are trying to access the app, they’ll undoubtedly face latency issues, i.e., it’ll be sluggish. Data sovereignty is another issue to consider as users also have to keep in mind where their data is being stored and processed.
For example, EU-based businesses might be worried about US law enforcement agencies accessing their data stored in the servers operated by US companies. Since cloud computing regulations vary significantly from country to country, it makes sense to carefully consider the provider’s country of origin and the physical location of its servers.
In addition to SaaS, other subsets of cloud computing include IaaS (Infrastructure as a Service), PaaS (Platform as a Service), BPaaS (Business Process as a Service), Cloud Management and Security Services, and Cloud Advertising.
Go-To-Market (GTM) Strategy: An action plan that explains how a company obtains, maintains, and grows customers in a repeatable and scalable manner.
Hybrid Cloud: Hybrid cloud technology makes more sense for most businesses since some of their data is in the public cloud while some projects are in the private cloud. Hybrid cloud can also involve multiple vendors and various cloud usage levels, which helps plan and recover from a disaster and avoid buying expensive hardware.
In-Product Call to Action (CTA): This indicates the purchase intents of prospects and aids in the conversion of prospects to PQLs or conversion events.
Initial Value Unit: A single interaction or a series of interactions that help the client go through a critical use case.
Latency: The time it takes for data packets to cross the data connection between the sender and the receiver—the lower the latency, the better, i.e., less time taken during data transmission. As a general rule of thumb, the nearer the physical location of the server, the lower the latency would be and vice versa.
Lifetime value: It is used for revenue forecasting; lifetime value is the average revenue a provider can expect from a subscriber until he/she cancels or leaves the service.
Loyalty Loop: A constant process of providing significant value and a positive customer experience in order to keep customers using the product, embracing new features, growing use, and renewing their subscriptions.
Migration Costs: Migration costs are the costs related to moving data from existing applications/systems to the cloud. Migration costs depend on the scale of the projects, while some businesses might have to completely re-optimize their data for cloud apps, which could result in abnormally high migration costs.
Moment of Joy: It happens when a prospect recognizes the worth of a product. It is similar to the Moment of Truth but more popular in the gaming industry. When a user performs a desired activity, a successful product-led conversion ties moments of joy with recognition and rewards.
Moment of Truth (MOT): In marketing, the point at which a consumer or user engages with a brand, product, or service to develop or modify an impression of that brand, product, or service.
MRR Churn Rate (a.k.a. Gross Revenue Churn): MRR (Monthly Recurring Revenue) churn is computed as a percentage of MRR lost from current customers at the beginning of the quarter. Since it excludes upsell and cross-sell, the MRR churn rate is always positive (a positive churn rate indicates that the firm is losing money).
MRR Expansion Rate (a.k.a. Net Revenue Retention Rate): For the time for which MRR expansion is computed, the percentage of MRR acquired owing to upsells and cross-sells to current customers. It’s determined by multiplying the expansion MRR by the beginning MRR.
Net MRR Churn (a.k.a. Net Revenue Churn): For the same period, the percentage change in MRR is based on churning and expansion MRR. It’s determined by subtracting expanded MRR from churning MRR and dividing the result by the period’s MRR. The proportion of MRR lost from current customers in a given period is known as net MRR churn.
Multi-tenancy: Some SaaS providers can offer cheap subscriptions by putting a lot of customers on a single database. This also means if the shared database gets hacked, you also risk compromising your own data as it’s being shared with other users. While sharing is more economical and makes sense for SMBs, you’d want to ensure that the provider securely ‘partitions’ each instance. Multi-tenant solutions usually also translate into less customization and authorization and fewer feature upgrades.
PS: Single-tenant SaaS, on the other hand, provides each customer with their own instance of the app and architecture, but it costs more and can result in inefficient use of resources. However, it offers better privacy and works better for large enterprises.
Non-Product Engagements: All of your prospects’ encounters with you outside of your product. “Product Engagements” is an excellent place to start.
Normalized Contracts: Contracts were altered to make them comparable enough to be compared; for example, an average MRR was assigned to a contract paid annually to compare it to a contract paid monthly.
Omnichannel Approach: Customers are engaged in contextual engagements that look and feel the same across channels and devices.
Personalized Customer Experience: It is a continuous process of creating and delivering personalized messages and experiences that result in meaningful consumer interactions.
PQL-To-Customer Rate: The proportion of PQLs who become customers. The number of clients is divided by the number of PQLs to arrive at this figure. The PQL-to-customer rate indicates how well your business converts PQLs into customers.
Private Cloud: Tucked safely away behind the enterprise firewall, a private cloud provides large businesses with more control over their data and processes than ‘normal’ cloud computing. Private clouds are primarily used for PaaS and IaaS projects, providing developers with access to the computing power they need to deal with projects that require a lot of computing power. However, only a few companies can afford to match the scale and security of large platforms such as AWS, Google, and Microsoft.
Product Champion: The individual who is most engaged with your product and has a clear idea of who will be utilizing it in their company, as well as what duties each user will play.
Product Engagements: Inside your product, prospects experience all of the encounters. See “Non-product engagements.”
Product-Led Go-To-Market Strategy: An action plan that explains how a firm attracts, maintains, and increases consumers through repeatable and scalable processes that are based on in-product customer behavior, feedback, product usage, and analytics.
Product Lifecycle: A framework for organizing a company’s marketing and sales of a product, from its introduction until when sales peak and fall.
Product/Market Fit: An experimenting approach that involves locating clients in a target market that have a problem that your product can solve for a price (or total cost of ownership) that is significantly lower than the value supplied in exchange. Company/market fit is broader, but the related notion incorporates pain-product and customer-message fit ideas.
Product-Qualified Lead (PQL): Based on product interest, usage, and behavioral data, it refers to a prospect who signed up and exhibited buying intent.
Professional Services: Beyond product training, assisting clients with best practices and ideas for running their businesses.
Prospect (user) onboarding: How a prospect progresses from initial signup to initial value and finally to PQL status. It is intended to assist users in quickly becoming acquainted with the product and realizing its first value.
Renewal Bookings: Bookings based on already signed contracts.
Renewal Rate: A measure of how long a customer stays with you.
Revenue Backlog: Revenue that has not yet been recognized but will be realized during the course of the contract.
Revenue Churn: Churn is assessed in terms of the financial value of contracts lost.
Revenue Recognition: A contract’s revenue is recognized only once when it has been generated, regardless of whether it has been paid in advance.
Runway: The number of months of runway refers to how much cash the firm has to operate at its present burn rate.
Signup-to-Customer Rate: It is the percentage of new clients who become paying customers after signing up. The number of clients is divided by the number of signups to arrive at this figure. The signup-to-customer rate reveals how well your organization converts signups into consumers on average.
Signup-to-PQL Rate: The proportion of prospects who meet the profile and in-product interaction requirements to qualify as product qualified leads (PQLs). The number of PQLs is divided by the number of signups to arrive at this figure. The signup-to-PQL rate tells you how well your organization interacts with prospects in the early phases of building a relationship.
Note that in some circumstances, examining the signup-to-PQL rate in terms of individual and account signups makes sense.
SLA: The Service Level Agreement is the most important (and often ignored) agreement that specifies what to expect from the provider and its responsibilities. No matter how boring the SLA sounds, everyone should read and understand it before signing up for anything. The SLA includes things like service availability and uptime (usually something like 99.99%), mean time to respond and repair, the escalation path, penalties and exclusions, and contract termination terms.
Unified Customer Profile Data: Your organization’s system of record all customer profile, corporate, and behavioral data is stored in.
Value Gap: The discrepancy between what a client expects from a product and what they receive or perceive as value.
Value-Based Pricing: This entails determining which characteristics of product clients appreciate the most.
Valued (Golden) Features These aid businesses in determining which product capabilities provide consumer value and thereby close the Value Gap. The concept also gives a way to determine which consumers benefit from product features and which customers are disengaged at critical phases of their lives.
Velocity Metrics: The time it takes for an organization to reach specific milestones. This contains the average number of days it takes a prospect to convert from signup to a PQL, as well as the average number of months it takes a business to break even (when CLV>CAC).
Visitor-to-Signup Rate: The proportion of visitors who come to your site and then sign up. The number of product signups is divided by the number of visitors to a signup page to arrive at this figure. The visitor-to-signup rate indicates how well your business persuades people to sign up for free trials or a freemium.
VPC and VPN: Virtual Private Cloud refers to the ‘isolated chunks’ of cloud users can securely access over the internet. Virtual Private Networks allow creating a secure network tunnel using which users can send/receive information securely.
Zero Data (Empty State): This is what a prospect sees during the first signup process when no data is accessible in the product. Guide the prospect through a path that populates, uploads, or integrates data into a product to solve this.
Frequently Asked Questions
What are examples of SaaS?
Google Workspace (formerly GSuite), Dropbox, Salesforce, Cisco WebEx, SAP Concur, and UserGuiding.
What SaaS means?
Software as a service (or SaaS) is a way of providing people with services over the Internet.
Is Netflix a SaaS?
Yes. Netflix is one of the biggest SaaS companies in the world.