If I told you that one of my SaaS clients has an ARR of $5 million with an ACV of $10,000 and a churn rate of zero, would you have any idea what I was talking about?
As a B2B tech PR agency, with SaaS clients in a variety of industries, we’ve come to know acronyms like these well. However, we still understand how confusing they can be — especially to someone new to the software as a service industry. Just starting out? Here are eight terms and acronyms everyone working with SaaS should know:
First things first: SaaS – Software as a Service. According to TechTarget, software as a service, or SaaS, is defined as a distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. Think: Salesforce or MailChimp.
Annual recurring revenue (ARR) – ARR is the amount of annual recurring revenue that a business generates. While monthly recurring revenue (MRR) is a monthly calculation, this is based on a yearly accounting basis. SaaS companies who deal with yearly or multi-year contracts will state their revenue typically as “ARR.”
Average contract value (ACV) – Average contract value is the average value of all of a business’ clients who are on a contract. For instance, a company might close three contracts for $1,000, $5,000, and $5,500, giving them an ACV of $3,833, or ($1,000+$5,000+$5,500)/3. ACV is usually a metric that shows the health of a SaaS business as most businesses are trying to drive that average value of their contract up each quarter and year.
Customer acquisition cost (CAC) – A key performance indicator for SaaS companies calculated by dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.
Cost per lead (CPL) – Cost per lead is the amount of money a company spends to acquire a lead. This differs from customer acquisition cost (CAC) as it just relates to how much it cost for a company to acquire that person who is interested in their product. This is usually a metric for marketing teams when they are tasked with delivering leads to a sales team, but are not responsible for turning that lead into a customer.
Churn – Churn is the amount of customers or money/revenue you lose in a given period of time. Churn is another “health measurement” the lower your monthly and yearly churn is, the easier it is to build a health business.
KPI – Short for “key performance indicator,” a KPI is a type of performance measurement and is used to evaluate success of an organization or of a particular activity.
Monthly recurring revenue (MRR) – a measure of the predictable and recurring revenue components of a subscription business. MRR will typically exclude one-time and variable fees, but for month-to-month businesses could include such items. MRR is used frequently by SaaS companies along with churn as c-level success metrics.
Net promoter score (NPS) – An index ranging from -100 to 100 frequently used by SaaS companies as a proxy for measuring overall customer satisfaction and brand loyalty. It is determined by asking customers, “How likely is it that you would recommend our organization to a friend or colleague?” Those who answer within the 0-6 range are considered “detractors,” the 7-8 range are considered “passives” and 9-10 range are considered “promoters.” NPS is then calculated using a specific formula.
While it’s not an extensive list, the definitions for these key terms and acronyms will definitely give you a leg-up as a B2B PR practitioner in the SaaS industry. Are these acronyms that you find apply to your organization? Contact Lindsey Groepper to learn more about how BLASTmedia can amplify your tech B2B tech company.