Subscription Management
Cart Abandonment
When the customer leaves a checkout page unattended for 30 minutes, or when they close the webpage and not return to it within 30 minutes, it is counted as an Abandoned Cart.
The point in a customer’s journey where the account information and payment details are collected, the transaction is processed, and the product/service is purchased.
Discounts & Coupons
Offering a discount is defined as slashing the price of a product to give customers something they can’t refuse. Running promotional discounts/coupons is a viable customer acquisition strategy for SaaS businesses looking to get more leads and profits.
Free Trial
An acquisition model where a product/service is offered to customers for a limited period of time, for free, so that they can learn about the product and discover value before actually paying for it.
Freemium model is an acquisition strategy used to attract users to a product/service by providing basic features for free, and advanced features for a premium.
Retaining your old pricing plan for existing customers, while new plans are applied to all new customers.
Recurring Revenue Models
A recurring revenue model is how a business makes money by trading access to products or services for regular, scheduled payments.
Subscription Management
Subscription management refers to customer lifecycle operations like managing trials, assigning credits, issuing refunds and making mid-cycle subscription changes. While recurring billing is automated, subscription management involves billing actions that cannot always be scheduled.
Volume Discounting
Volume discounting is a method by which the price of items bought are lowered when increased quantities are purchased.
Recurring Billing
Account Hierarchy
Account hierarchy is a way of structuring a complex organisation into a simple parent-child relationship, generally used to break down locations, departments or any other function of the company.
Calendar Billing
Calendar billing equips a business to change the billing date of its user’s subscription cycle. It helps businesses provide flexibility to its users to obtain unique billing dates which will better align with the user’s financial cycles.
Consolidated Invoicing
The operation of generating a single invoice against multiple purchases made by a specific customer over a specific period of time.
Credit Notes
A document that's used to return an invoice amount as credits made to a customer account or as cash. Also called credit memos.
The process of handling failed payments and declined credit cards to recover lost revenue.
Friendly Fraud
Friendly Fraud or Chargeback Fraud occurs when a consumer purchases a product/service online using a credit card and later claims a chargeback for the same instead of raising a refund from the merchant.
Payment Methods
The number of ways in which merchants can collect payments from their customers, for example, credit cards, digital wallets, direct debit, offline payment etc.,
Adjusting a customer's bill amount to reflect any plan changes made in the middle of a billing cycle.
Recurring Billing
The process of ensuring subscriptions to your product or service are billed accurately and on time for each customer, accounting for global taxes, proration, payment failures, etc.
Usage-based Billing
Also called metered billing or pay-as-you-go pricing, this allows customers to only pay for what they've used in each billing cycle.
Accounting and Taxes
Revenue Recognition Principle
Under the Generally Accepted Accounting Principle (GAAP), revenue recognition is the condition under which revenue is recognized and provides a way to account for it in the financial statements. It is as simple as it sounds but taking the literal value of it might not be the best way to account for revenue in SaaS businesses.
Order To Cash
Order to Cash also known as O2C or OTC is the business process that covers the entirety of the order processing system right from receiving the order to up until the point the payment is made and an entry is logged in your accounting books.
Sales Tax
Sales tax is a consumption tax imposed on the buyer during the point of sale of a product/service, collected by the seller, and paid to the government.
Value Added Tax
Value Added Tax (or VAT) is a consumption tax that’s added on top of a product, whenever value is added on each stage of the production, until the point of sale.
Purchase Order
Purchase Order (PO) is an official order form submitted by a customer to a business, committing to pay for the product/service that it is to be delivered in the future.
Accrued Revenue
Accrued Revenue is revenue that is recognized but is not yet realized.
Deferred Revenue
Deferred revenue is commonly known as unearned revenue. When a company receives advance payment from a customer before the product/service has been delivered; it is considered as deferred revenue. Deferred revenue is listed as liabilities on the balance sheet.
Accounts Receivable (A/R) aging report
An A/R aging report contains a list of your customers' unpaid invoices since the time the sales invoice was issued along with their duration. In other words, accounts receivable report lists the amount due from your customers.
SaaS Metrics
Lifetime Value and CAC/LTV Ratio
Customer Lifetime Value (LTV) is the average revenue generated from a customer over the life of their account. In simple terms, it is the total money you would make off a customer before churning.
Customer Acquisition Cost (CAC) is simply the average money you spend in obtaining a customer.
Operation Expenses
Operating expenses are those expenses that are incurred by a business through its regular business operations. These expenses are incurred from day-to-day business activities.
Quick Ratio
Quick ratio, also known as acid-test ratio or liquidity ratio, is an indicator of a business’s ability to meet its short-term obligations or liabilities by having liquid assets (cash and assets that can be quickly converted to cash).
Current Ratio
Current ratio, also called working capital ratio, is a liquidity ratio used to measure a business’ ability to meet its short-term liabilities. It compares the firm’s current assets to its current liabilities.
Bookings in SaaS
Understanding Bookings is essential for understanding the health and the sales process of any business. Predominantly, Bookings and Revenues are misunderstood and oft times used interchangeably - even though they imply two different things.
Customer Churn
Customer churn is a measure of the customers lost by a subscription business. Customer churn is also called as Logo churn.
Negative Churn
Negative churn is a specific state of the net churn of a subscription business when its able to add more in expansion revenue than its losing as churned mrr.
Revenue Churn
Revenue churn is a measure of the recurring revenue lost by a subscription business through subscription cancellations and downgrades.
Involuntary Churn
Involuntary Churn occurs when a customer’s payment attempt fails, leading to their subscription being canceled.
Gross MRR Churn Rate
Gross MRR Churn rate is the percentage reduction in monthly recurring revenue from existing subscriptions because of factors such as subscriptions being moved from paid plans to lower or free plans, cancellations, add-ons and other services removed from subscriptions.
Net MRR Churn Rate
Net MRR Churn Rate is the net percentage of total MRR lost from existing subscriptions/customers during a period.
Churn Rate
Churn rate is the rate at which your customers are canceling their subscriptions. It is the percentage of subscribers who stop paying you.
Subscription Churn
Subscription churn is the number of subscribers/customers that stop paying for your product/service in the given period of time. Churn can be seen from different angles, and businesses can have its own way of calculating it based on what is relevant for their organization.
Average Revenue Per User (ARPU)
ARPU is the revenue generated from each paid subscription over a period, typically per month or year.
Contraction MRR
Contraction MRR is the total reduction in MRR due to downgrades and subscription cancellations (or churn) compared to the previous month.
Downgrade MRR
Downgrade MRR is the reduction in monthly recurring revenue caused by existing subscribers paying less than they did the previous month.
Expansion MRR
Expansion MRR is the additional monthly recurring revenue generated this month compared to last month, excluding the MRR contributed by new subscribers.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable recurring revenue earned from subscriptions in a particular month.
Net MRR Growth Rate
Net MRR Growth rate is the net increase or decrease in monthly recurring revenue from one month to the next.
New MRR is the additional monthly recurring revenue earned from new subscriptions acquired during a month.
Reactivation MRR
Reactivation MRR is the monthly revenue earned from previously churned or canceled subscriptions that are reactivated during the month.
Upgrade MRR
Upgrade MRR is the monthly recurring revenue generated when subscriptions are moved from existing plans to higher plans.
SaaS Sales Forecasting
The sales forecasting process essentially means estimating and predicting the future revenue of your SaaS product.