Every SaaS Term.
Plain Language.

ARR

Annual Recurring Revenue. MRR multiplied by 12. Annualises recurring subscription revenue for scale-level analysis and valuation discussions.

Example: £50,000 MRR × 12 = £600,000 ARR

Burn Multiple

A capital efficiency metric measuring how much the business burns for every pound of net new ARR generated. Below 1x is exceptional.

Example: £100k net burn generating £80k new ARR = 1.25x burn multiple

Burn Rate

The rate at which a company spends its cash reserves. Gross burn includes all outgoings. Net burn subtracts revenue received.

Example: £150k cash out, £60k revenue = £90k net burn

CAC

Customer Acquisition Cost. The total cost of acquiring a single new customer — including all sales, marketing, and related operational costs.

Example: £30,000 S&M spend, 30 new customers = £1,000 CAC

CAC Payback Period

The number of months required to recover the cost of acquiring a customer through their subscription revenue. Under 12 months is strong for B2B SaaS.

Example: £1,000 CAC ÷ (£200 MRR × 0.75 margin) = 6.7 months

Churn Rate

The percentage of customers (or revenue) lost in a given period. Track both customer churn and revenue churn — they tell different stories.

Example: 5 customers lost from 100 = 5% monthly customer churn

Cohort Analysis

Analysis of a group of customers acquired in the same period — tracking their behaviour over time to reveal retention patterns and PMF signals.

Contraction MRR

Revenue lost from existing customers downgrading their subscription in a given period. One of the four MRR movement components.

DCF Analysis

Discounted Cash Flow analysis. A valuation methodology that calculates the present value of expected future cash flows, discounted at a rate reflecting business risk.

Expansion MRR

Additional revenue generated from existing customers upgrading or expanding their subscription in a given period. The primary driver of negative net revenue churn.

Gross Margin

Revenue remaining after subtracting the direct costs of delivering the product (COGS). B2B SaaS businesses typically target 70%+ gross margin.

Example: £100k revenue, £20k COGS = 80% gross margin

LTV

Customer Lifetime Value. The total revenue expected from a customer over their entire relationship with the business.

Example: £200 avg MRR ÷ 2% churn = £10,000 LTV

LTV:CAC Ratio

The ratio of Customer Lifetime Value to Customer Acquisition Cost. 3:1 or higher is the widely cited Series A benchmark for B2B SaaS.

Example: £10,000 LTV ÷ £2,000 CAC = 5:1 ratio

MRR

Monthly Recurring Revenue. The normalised monthly value of all active recurring subscription contracts. The primary revenue metric for SaaS businesses.

Example: Annual contract of £12,000 contributes £1,000 to MRR

NDR

Net Dollar Retention (also Net Revenue Retention). Revenue retained and expanded from existing customers as a percentage of starting revenue. Above 100% indicates growth from existing base.

Example: £100k MRR + £15k expansion − £5k contraction − £5k churn = 105% NDR

PMF

Product-Market Fit. The condition where a product satisfies genuine market demand — measurable in retention curves, expansion MRR, referral behaviour, and Sean Ellis survey scores above 40%.

Rule of 40

A SaaS health benchmark: revenue growth rate (%) + profit margin (%) should equal or exceed 40. Balances growth and profitability at scale.

Example: 60% growth + (−20%) margin = 40 score

Runway

The number of months a business can operate before running out of cash at the current net burn rate. 18+ months is the fundraising minimum.

Example: £300k cash ÷ £30k monthly burn = 10 months runway

Unit Economics

The direct revenues and costs associated with a single business unit — typically a single customer. Determines whether the business is viable at scale.

VC Method

A startup valuation methodology that works backwards from an expected exit value to derive a pre-money valuation based on the investor's required return.