SaaS Finance Glossary

The annualized revenue value of a single customer contract, excluding one-time fees. ACV is used in enterprise SaaS to measure deal size and compare sales performance.

The average monthly or annual revenue generated per user or account. ARPU helps you understand pricing efficiency and segment customers by value.

The annualized value of your recurring subscription revenue. ARR normalizes monthly fluctuations and is the standard metric investors use to benchmark SaaS companies.

A software delivery model where companies sell cloud-based applications to other businesses via subscription. B2B SaaS combines recurring revenue, high gross margins, and scalable distribution.

Traditional debt financing from banks, structured for recurring-revenue businesses. Bank loans typically offer lower interest rates than venture debt but require collateral, profitability history, or personal guarantees.

Building and growing a business using personal funds and revenue rather than external investment. Bootstrapped founders retain full ownership but must grow within the constraints of their cash flow.

The point where total revenue equals total costs and the business becomes self-sustaining. For SaaS, this often refers to the month when cumulative revenue covers all prior investment in the product.

Short-term funding used to bridge the gap between two financing rounds or before a major milestone. Bridge financing provides immediate capital while you prepare for a larger raise.

The ratio of net burn to net new ARR. A burn multiple below 1x means you spend less than a dollar for every dollar of new ARR — a sign of capital-efficient growth.

The rate at which your company spends cash beyond what it earns. Net burn rate equals total expenses minus total revenue, and determines how long your cash runway lasts.

The total cost of acquiring a new customer, including sales and marketing spend. CAC is calculated by dividing total acquisition spend by the number of new customers gained.

The number of months it takes to recoup the cost of acquiring a customer through their gross margin contribution. Shorter payback periods indicate more efficient customer acquisition.

The number of months your company can continue operating at its current burn rate before running out of cash. Runway is calculated by dividing cash balance by monthly net burn.

The percentage of customers or revenue lost over a given period. Customer churn measures lost accounts while revenue churn captures the dollar impact of downgrades and cancellations.

The direct costs of delivering your product to customers. For SaaS, COGS typically includes hosting, third-party software, customer support, and payment processing fees.

A short-term debt instrument that converts into equity at a future financing round, usually at a discount. Convertible notes defer valuation negotiations and are common in seed-stage fundraising.

Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA approximates operating cash flow and is used to compare profitability across companies regardless of capital structure.

EBITDA expressed as a percentage of total revenue. EBITDA margin measures operating profitability and is a key input to the Rule of 40 and SaaS valuation multiples.

The reduction in ownership percentage that occurs when new shares are issued during a funding round. Dilution is the trade-off founders accept in exchange for growth capital.

Additional revenue earned from existing customers through upsells, cross-sells, or plan upgrades. Expansion revenue is a key driver of net revenue retention above 100%.

Revenue minus COGS, expressed as a percentage. SaaS companies typically target gross margins of 70-85%, which reflects the scalability advantage of software delivery.

The percentage of recurring revenue retained from existing customers excluding any expansion revenue. GRR isolates your ability to keep customers from downgrading or churning.

Selling outstanding invoices to a third party at a discount in exchange for immediate cash. Factoring helps B2B companies with long payment cycles access working capital without taking on traditional debt.

A flexible borrowing arrangement that lets you draw funds up to a set limit and pay interest only on the amount used. For SaaS companies, lines of credit provide working capital for variable expenses without a fixed repayment schedule.

The percentage of customer accounts (logos) lost during a period, regardless of their revenue contribution. Logo churn differs from revenue churn because losing a small customer counts the same as a large one.

The total revenue a customer generates over their entire relationship with your company. LTV is calculated from ARPU, gross margin, and churn rate, and is essential for understanding customer profitability.

The ratio of customer lifetime value to customer acquisition cost. A healthy SaaS LTV:CAC ratio is typically 3:1 or higher, indicating you earn three dollars for every dollar spent acquiring a customer.

The percentage added to the cost of a product or service to determine its selling price. In SaaS, markup reflects the relationship between COGS and subscription pricing.

A lump sum advance in exchange for a percentage of future sales until the advance plus fees is repaid. MCAs offer fast funding but at higher effective costs than revenue-based financing.

The predictable revenue your business earns each month from active subscriptions. MRR breaks down into new, expansion, contraction, and churned components.

The percentage of recurring revenue retained from existing customers over a period, including expansions, contractions, and churn. NRR above 100% means you grow even without new customers.

Capital that does not require giving up equity in your company — including revenue-based financing, term loans, grants, and debt instruments. Non-dilutive funding lets founders scale while retaining full ownership.

The degree to which a product satisfies strong market demand. In SaaS, product-market fit shows up as organic growth, high retention, and customers actively seeking you out.

The portion of revenue that repeats predictably each billing period. Recurring revenue is the foundation of SaaS business models and the primary reason they command higher valuation multiples.

A funding model where investors provide capital in exchange for a percentage of ongoing revenue until a predetermined amount is repaid. It is non-dilutive and aligned with your cash flow.

A benchmark that says a healthy SaaS company should have its revenue growth rate plus profit margin equal or exceed 40%. It balances growth against profitability.

The accounting practices specific to subscription software businesses, including revenue recognition (ASC 606), deferred revenue, and the treatment of capitalized development costs.

A spreadsheet-based framework that projects revenue, expenses, cash flow, and key metrics over time. SaaS financial models are built around recurring revenue dynamics and are essential for fundraising and planning.

Funding options specifically structured for subscription software businesses, using recurring revenue as collateral instead of physical assets. Includes revenue-based financing, venture debt, SBA loans, and more.

The rate at which your recurring revenue increases over time, typically measured month-over-month or year-over-year. Growth rate is the primary driver of SaaS valuation multiples.

The key performance indicators that SaaS companies track to measure business health — including MRR, churn, CAC, LTV, NRR, and gross margin. KPIs guide operational decisions and investor reporting.

The revenue or earnings multiples used to value SaaS companies, typically expressed as a multiple of ARR. Multiples vary based on growth rate, retention, margins, and market conditions.

The estimated market value of a SaaS company, typically expressed as a multiple of ARR. Valuation multiples vary based on growth rate, retention, margins, and market conditions.

A Simple Agreement for Future Equity — a Y Combinator-created instrument that gives investors the right to future equity without setting a valuation upfront. Unlike convertible notes, SAFEs carry no interest rate and no maturity date, making them the simplest early-stage funding instrument.

A loan with a fixed repayment schedule over a set period. For SaaS companies, term loans provide predictable capital without equity dilution and are typically repaid from recurring revenue.

The direct revenues and costs associated with a single unit of your business — typically one customer. Strong unit economics mean each customer is profitable on a standalone basis.

Equity financing from institutional investors who provide capital in exchange for ownership stakes in high-growth startups. VC funding typically involves board seats, governance rights, and pressure for rapid scaling toward a large exit.

A form of debt financing for venture-backed startups, typically structured as a term loan with warrants. Venture debt supplements equity rounds and extends runway without additional dilution.

A measure of how many new users each existing user brings in through referrals or organic sharing. A viral coefficient above 1.0 means your product grows exponentially without paid acquisition.