The SaaS Finance Glossary

The accounts receivable turnover ratio measures how efficiently a company collects payment from its customers by comparing net credit sales to average accounts receivable. A higher ratio indicates faster collection. In SaaS, this metric reveals how well the billing and collections process converts invoiced revenue into cash.

Accrued revenue is revenue that has been earned by delivering goods or services but has not yet been invoiced or received as payment. In SaaS, accrued revenue occurs when a company delivers service before billing — the opposite of deferred revenue, where payment is received before delivery.

Annual Recurring Revenue (ARR) is the annualized value of a SaaS company's committed recurring subscription revenue. ARR equals MRR multiplied by 12 and usually excludes one-time fees, services, and purely variable usage, making it a standard metric for investor reporting, valuation, and annual planning.

ARR components are the revenue movements that explain how Annual Recurring Revenue changes over time. SaaS companies typically break ARR into beginning ARR, new ARR, expansion ARR, contraction ARR, reactivation ARR, and churned ARR to understand growth quality and forecast future performance.

ASC 606 (Revenue from Contracts with Customers) is the accounting standard that governs how and when companies recognize revenue. It requires revenue to be recognized when control of goods or services transfers to the customer, following a five-step model. For SaaS companies, ASC 606 determines how subscription revenue, implementation fees, and multi-element arrangements are recognized over time.

Burn rate is the speed at which a company spends its cash reserves, typically measured as net cash outflow per month. In SaaS, burn rate determines runway — the number of months a company can continue operating before running out of cash, making it the most watched metric at pre-profit startups.

Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, calculated by dividing total sales and marketing spend by the number of new customers acquired in a period. CAC is one of the most critical SaaS unit economics metrics, determining how efficiently a company converts spend into paying customers.

CAC payback period is the number of months it takes for a customer's gross profit to repay the cost of acquiring them. In SaaS, a payback period under 12 months is considered efficient — meaning the company recovers its acquisition investment within the first year and every subsequent month generates pure profit.

Churn rate is the percentage of customers or revenue lost over a given period. In SaaS, churn rate is the inverse of retention — a 5% monthly customer churn means the company loses 5% of its customer base each month. Reducing churn is the single most effective lever for improving LTV, NRR, and long-term revenue growth.

Committed Monthly Recurring Revenue (CMRR) is the monthly value of contracted or committed recurring revenue. In SaaS, CMRR is used to measure subscription revenue that customers are obligated to pay, making it useful when contract start dates, onboarding delays, or committed minimums make basic MRR incomplete.

Customer Lifetime Revenue (CLR) is the total top-line revenue a SaaS company expects to earn from a customer across the full relationship. Unlike customer lifetime value, CLR does not subtract service costs or gross margin, so it measures revenue contribution rather than profit contribution.

Deferred revenue is payment received for goods or services that have not yet been delivered, recorded as a liability on the balance sheet until the obligation is fulfilled. In SaaS, deferred revenue arises when a customer pays upfront for an annual subscription but the service is delivered monthly over 12 months.

Dunning is the process of communicating with customers to collect overdue payments, including automated email sequences, payment retry logic, and escalation workflows. In SaaS, dunning prevents involuntary churn caused by failed credit card charges, expired payment methods, and billing errors — recovering revenue that would otherwise be lost without the customer ever deciding to cancel.

Gross Revenue Retention (GRR) measures the percentage of recurring revenue retained from existing customers over a period, excluding any expansion revenue. GRR can never exceed 100% and reflects the core stickiness of a SaaS product — how much revenue stays without upsells compensating for losses.

Customer Lifetime Value (LTV) is the total revenue a SaaS company expects to earn from a single customer over the entire duration of their relationship. LTV combines average revenue per user, gross margin, and churn rate to quantify the long-term economic value of each customer.

The LTV:CAC ratio compares Customer Lifetime Value to Customer Acquisition Cost, measuring how much long-term value each acquisition dollar generates. A ratio of 3:1 or higher is the standard SaaS benchmark — meaning every dollar spent on acquisition returns at least three dollars in gross profit over the customer's lifetime.

Monthly Recurring Revenue (MRR) is the predictable revenue a SaaS company earns each month from active subscriptions. MRR normalizes different billing periods — annual, quarterly, and monthly — into one consistent monthly figure, making it the foundational metric for SaaS financial planning.

MRR churn measures the amount or rate of monthly recurring revenue lost from cancellations and downgrades during a period. SaaS teams use MRR churn to understand how much recurring revenue is leaking from the customer base before or after accounting for expansion.

MRR cohort analysis tracks how monthly recurring revenue changes over time for a specific group of customers that share a starting period or characteristic. In SaaS, it helps teams understand retention, expansion, and churn trends that aggregate MRR reporting can hide.

Net Dollar Retention (NDR) measures the percentage change in revenue from existing customers over a period, accounting for expansion, contraction, and churn. NDR above 100% indicates that revenue growth from upsells and cross-sells exceeds revenue lost from downgrades and cancellations — the clearest signal of a sticky, expanding product.

Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn. An NRR above 100% means a SaaS company is growing revenue from its existing customer base without acquiring a single new customer.

Revenue churn measures how much recurring revenue a SaaS company loses from downgrades and cancellations during a period. It is often expressed as lost MRR or ARR, or as a percentage of starting recurring revenue, and is more financially meaningful than customer churn alone.

The Rule of 40 is a SaaS performance benchmark stating that a healthy software company's combined revenue growth rate and profit margin should equal or exceed 40%. It balances growth and profitability — a company growing at 60% with a -20% margin passes, as does a company growing at 10% with a 30% margin.

Run rate is an annualized projection of future revenue based on current period performance. In SaaS, run rate is typically calculated by multiplying the most recent month's revenue by 12, providing a forward-looking estimate of annual revenue if current conditions remain unchanged.

Total bookings is the total value of contracts signed in a given period, including recurring subscriptions, one-time fees, services, and other committed transaction value. In SaaS, bookings are a sales momentum metric, not the same as billings, recognized revenue, or ARR.