SaaS glossary
The metrics and jargon of SaaS and indie hacking, explained in a sentence or two, with links to calculators and guides that go deeper.
- Activation rate
- The percentage of new signups who reach the product’s first meaningful result (the “aha moment”). It is the earliest predictor of retention. Learn more →
- ARPU / ARPA
- Average revenue per user (or account): MRR divided by the number of paying customers. It shows how much a typical customer pays each month. Learn more →
- ARR (Annual recurring revenue)
- The yearly value of recurring subscriptions, usually calculated as MRR × 12. Commonly used once a business passes roughly $100K per year and in valuations. Learn more →
- Bootstrapping
- Building a company without outside investment, funding growth from revenue and the founders’ own savings. Learn more →
- Build in public
- Openly sharing the process of building a product, including metrics, decisions, and lessons, to grow an audience and stay accountable. Learn more →
- Burn rate
- How fast a company spends cash. Gross burn is total monthly spending. Net burn is spending minus revenue. Learn more →
- CAC (Customer acquisition cost)
- Total sales and marketing spend in a period divided by the number of new customers acquired in that period. Learn more →
- CAC payback period
- The number of months of gross profit from a customer needed to recover what it cost to acquire them. Under 12 months is healthy for SMB SaaS. Learn more →
- Churn rate
- The percentage of customers (customer churn) or revenue (revenue churn) lost during a period, usually measured monthly. Learn more →
- CMGR
- Compounded monthly growth rate: the constant monthly growth rate that would take a metric from its starting value to its ending value over a period. Learn more →
- Cohort analysis
- Grouping customers by when they signed up and tracking each group’s retention or revenue over time, to see whether the product is improving. Learn more →
- Contraction MRR
- Recurring revenue lost from customers who downgrade to a cheaper plan but do not cancel. Learn more →
- Default alive
- A startup that will reach profitability on its current growth trajectory before running out of money. The opposite is default dead. Learn more →
- Dunning
- The process of retrying failed payments and emailing customers to update their payment details, used to reduce involuntary churn. Learn more →
- Expansion MRR
- Additional recurring revenue from existing customers through upgrades, extra seats, add-ons, or higher usage. Learn more →
- Freemium
- A pricing model with a permanently free plan alongside paid plans, designed so that free users convert or spread the product. Learn more →
- Gross margin
- Revenue minus the direct cost of delivering the service (hosting, third-party APIs, payment fees, support), as a percentage of revenue. Software is typically 75–90%. Learn more →
- Indie hacker
- A founder who builds an online business independently, usually bootstrapped and often solo, aiming for profitability and freedom rather than hypergrowth. Learn more →
- Involuntary churn
- Customers lost because a payment failed (expired card, insufficient funds) rather than because they chose to cancel. Learn more →
- LTV (Customer lifetime value)
- The total gross profit expected from an average customer over their lifetime: ARPU × gross margin ÷ monthly churn. Learn more →
- LTV:CAC ratio
- Lifetime value divided by acquisition cost. Around 3:1 is the common benchmark for a healthy, efficient business. Learn more →
- MRR (Monthly recurring revenue)
- The normalized monthly value of all active subscriptions. Annual plans contribute one twelfth of their price each month. Learn more →
- MVP (Minimum viable product)
- The smallest version of a product that solves the core problem well enough for early customers to use and pay for. Learn more →
- Net new MRR
- The net change in MRR over a month: new + expansion + reactivation − contraction − churned MRR. Learn more →
- NRR (Net revenue retention)
- Revenue retained from an existing set of customers after churn, contraction, and expansion. Above 100% means existing customers grow revenue on their own. Learn more →
- Product-market fit
- The point at which a product satisfies a strong market demand, usually visible as strong retention, organic word of mouth, and customers who would be very disappointed to lose it. Learn more →
- Ramen profitable
- When a startup’s revenue covers the founders’ basic living expenses. Coined by Paul Graham. Learn more →
- Runway
- The number of months a company can operate before running out of cash: cash in the bank ÷ monthly net burn. Learn more →
- SDE (Seller’s discretionary earnings)
- Profit plus the owner’s salary and personal benefits. Small SaaS businesses are often valued as a multiple of SDE. Learn more →
- Value metric
- The unit a SaaS product charges for (seats, contacts, projects, usage) that should grow as the customer gets more value. Learn more →