SaaS

Annual Recurring Revenue (ARR) is the total predictable revenue your SaaS business expects to earn from subscriptions over a year. It’s calculated by multiplying your Monthly Recurring Revenue (MRR) by 12, or by dividing the total contract value by the number of years for multi-year deals. ARR excludes one-time fees and focuses only on recurring income, making it a key metric for tracking growth and forecasting future revenue.

Committed Monthly Recurring Revenue (CMRR) is a forward-looking metric that adjusts your current MRR by accounting for new bookings, churn, and any known expansions or contractions. It represents the revenue you can confidently expect each month, factoring in signed contracts that haven’t started yet and anticipated cancellations, providing a more accurate snapshot for planning.

Monthly Recurring Revenue (MRR) is the total predictable revenue your SaaS business generates from active subscriptions each month. MRR helps you understand the health of your business, track growth, and measure the impact of new sales, churn, and upgrades. It’s the foundation for calculating other key SaaS metrics like ARR and CMRR

Net Negative Churn occurs when the revenue gained from existing customers through expansions, upgrades, or cross-sells exceeds the revenue lost from cancellations and downgrades. This means your business is growing from your current customer base, even if you don’t acquire new customers, signaling strong product value and customer satisfaction.

Average Cost of Service (ACS) is the average expense your company incurs to deliver your SaaS product or service to each customer. It includes costs like hosting, support, and infrastructure. Knowing your ACS helps you price your product effectively and maintain healthy profit margins as you scale.

Customer Acquisition Cost (CAC) measures the total sales and marketing expenses required to acquire a new customer. This includes ad spend, salaries, software, and other related costs. Tracking CAC is crucial for understanding how efficiently your startup is growing and for optimizing your marketing strategies.

The CAC Payback Period is the time it takes for your SaaS business to recoup the cost of acquiring a customer, using the gross profit generated from that customer. A shorter payback period means faster returns on your marketing investment, freeing up cash for further growth.

Customer Lifetime Value (LTV or CLTV) estimates the total revenue your SaaS business can expect from a customer throughout their entire relationship with you. It’s calculated by multiplying the average revenue per account by the average customer lifespan. A high LTV helps justify higher CAC and supports sustainable growth.