# 📕Glossary

Explore our SaaS glossary for clear definitions of key terms, metrics, and KPIs. Enhance your understanding of software as a service efficiently.

## Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is the predictable recurring revenue that will be generated by your active subscriptions over the following month. As its name suggests, MRR takes into account the average amount of each subscription normalized over a monthly period.

For example, an annual subscription totaling €1,200 translates into a contribution of €100 to MRR. The MRR is calculated according to the following formula:

`[MRR] = [number of active subscriptions] x [average subscription amount normalized to a monthly period]`

MRR can also be translated into an annual view, also known as Annual Recurring Revenue (ARR), which is the predictable recurring revenue to be earned from active subscriptions over the next twelve months. ARR is calculated using the following formula:

`[ARR] = MRR * 12`

## Number of active subscribers

The number of active subscribers is the sum of all clients that have an **active subscription** at any point in time.

This allows you to accurately track the number of clients currently generating recurring revenue and the growth of your client base.

## Revenue

Revenue is the amount of income generated by your business over a given period, usually a month or a year.

Revenue is divided into two parts:

Recurring revenue:

This is the revenue recognized for all your active subscriptions over a given period. Income from subscriptions covering a period longer than one month is smoothed over the duration of the subscription, and recognized according to the number of days in the selected period. This concept therefore differs from MRR, which is the sum of the monthly amounts of all subscriptions active at a given time.

Non-recurring revenue:

This is the sum of all invoiced items not related to subscriptions (one-offs, commissioning costs, etc.) over a given perio

## MRR growth breakdown

**MRR growth breakdown **helps you understand how your MRR has evolved over a given period.

It breaks down the change in your MRR between the following movements:

**Gain**: new MRR generated by clients gained**Reactivation**: new MRR generated by clients that have previously churned or paused and have been regained or reactivated**Churn**: MRR lost due to lost clients**Expansion**: new MRR generated by clients that have increased their subscription amount through upselling**Contraction**: MRR lost due to clients that have decreased their subscription amount

## Client growth

**Active subscribers growth breakdown **helps you understand how your active subscribers base has evolved over a period of time.

It breaks down the change in your number of active subscribers between the following movements:

**Gain**: clients gained**Reactivation**: clients that have previously churned or paused and have been regained or reactivated**Churn**: lost clients

## Churn rate

**Overall churn** is a key metric to track the health of your business, your product-market fit and customer satisfaction.

It measures:

**Revenue churn**is the percentage of MRR lost to churn (and optionnaly, to contraction) over a given period, with the following formula:

`Revenue churn rate = [Sum of MRR lost to churn (and optionnaly, to contraction) over the period] ÷ [MRR at start of the period]`

**Client churn**is the percentage of clients lost to churn over a given period, with the following formula:

`[Client churn rate] = [Number of clients lost to churn over the period] ÷ [Number of clients at start of the period]`

Churn is rebased on a monthly or annual basis.

## ARPA & ACV

**Average Revenue Per Account (ARPA), **corresponds to the average MRR per active subscriber.

It is calculated with the following formula for a given point in time:

`[ARPA] = [MRR] ÷ [Number of billed customers]`

Tracking the ARPA is a way to assess your capacity to sell increasing amounts to customers.

**Annual Contract Value [ACV]** corresponds to the average annual subscription amount (or ARR) per customer. It is calculated with the following formula :

`[ACV] = [ARPA] x 12`

## Customer Acquisition Cost (CAC)

**Customer Acquisition Cost (CAC)** is the sum of all the costs related to acquiring a new client.

It is a measure of your customer go-to-market efficiency and a key driver in your profitability (it is typically compared to clients’ **Lifetime Value (LTV))**.

It is calculated with the following formula:

`[`

**CAC over a given period**`] = [Sum of marketing and sales expenditures over the period] ÷ [ Number of new clients over the period]`

**The default period is 3 months**, this allows a smoothing of the change in monthly expenditures.

## CAC payback period

The CAC Payback Period is the number of months of subscription required to **pay back the upfront customer acquisition costs**.

Its formula is the following for any given month:

`[CAC payback period] = [CAC] ÷ [New client MRR]`

## Lifetime Value (LTV)

**Customer Lifetime Value (LTV**) is the predicted amount a customer will spend on your product during the total expected length of their subscription (renewals included).

It allows you to estimate the total worth of each subscriber depending on the revenue they generate over their "lifetime".

As the total expected length of a customer's subscription is usually not observable, LTV is estimated using your customers' ARPA and churn rate.

LTV is calculated as follows for a given point in time:

**[LTV]**` = [ARPA] ÷ [average churn over the last 6 months]`

## LTV/CAC

The LTV/CAC ratio compares the lifetime value of a customer compared to the cost of its acquisition. The higher the ratio, the more revenue a given customer generates above its CAC and the more likely you are to achieve profitability.

As a general rule, a ratio greater than 3.0x is considered good.

## Revenue retention

**Net revenue retention **measures the recurring revenue generated from existing customers over a set period. It measures the change in MRR related to upsell, downgrades and churn over a given period compared to the MRR at the beginning of the period.

It is calculated with the following formula for a given period:

`[`

**Net revenue retention**`] = [MRR at the beginning of period - Contraction MRR – Churn MRR + Expansion MRR over the period] ÷ [MRR at the beginning of period]`

A net revenue retention above 100% indicates that the upsells over a given period were greater than churn and downgrades, which is typically viewed favorably by investors as this indicates enhanced growth potential.

**Gross revenue retention** does not take into account expansion MRR in its calculation. As such, its maximum is 100% and its formula is the following:

`[`

**Gross revenue retention**`] = [MRR at the beginning of period - Contraction MRR – Churn MRR] ÷ [MRR at the beginning of period]`

## Cash outflows

**Cash outflows** are the sum of all the transactions detected in your bank account with a negative amount.

They can be classified by category in order to give you a clear picture of various sources of cash outflow.

## Cash inflows

**Cash inflows** are the sum of all the transactions detected in your bank account with a positive amount.

They can be classified by category in order to give you a clear picture of various sources of cash inflow.

## Change in cash

**Change in cash** corresponds to the sum of all cash inflows and outflows over a given period. This allows you to bridge the change in your cash position between two given dates.

Change in cash is computed as follows for a given period:

`[Change in cash] = [sum of all cash inflows] - [sum of all cash outflows]`

## Cash runway

The cash runway corresponds to the number of months until your company runs out of cash based on its average cash burn over the previous months.

Cash burn is a measure of how much cash your company uses up over a given period. It is calculated on a gross and net basis as follows:

`[`

**Gross cash burn over a given period**`] = [sum of all cash outflows over a given period]`

`[`

**Net cash burn over a given period**`] = [sum of all outflows and inflows excluding financing-related inflows (e.g. fundraising) over a given period]`

We calculate cash burn on a monthly basis and average it over a chosen period to smooth volatility.

Once cash burn is defined, we compute the cash runway with the following formula:

`[`

**Cash runway (in months)**`] = [Current cash position] / [Gross or net average cash burn]`

If your cash burn is positive, i.e. you generate excess cash over the selected period, cash runway will not be displayed as it is technically infinite.

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