SaaS & Investor Metrics Glossary
Quick reference for the terms I use when talking about unit economics, growth, and investor conversations.
ARR
Annual Recurring Revenue - the total predictable revenue from all active subscriptions over a year, normalized to an annual rate. Used by SaaS investors to measure revenue stability.
CAC
Customer Acquisition Cost - the total sales and marketing spend required to acquire one paying customer. CAC payback period measures how many months until that customer's revenue covers the acquisition cost.
LTV
Lifetime Value - the total profit or revenue a customer generates from their entire relationship with the company. High LTV-to-CAC ratios (ideally 3:1 or higher) indicate sustainable unit economics.
MRR
Monthly Recurring Revenue - the total predictable revenue from all active subscriptions in a single month. Often used as a snapshot metric; ARR is the annual projection.
Churn
Customer Churn Rate - the percentage of customers who cancel or stop using your product in a given period (usually monthly). Low churn indicates product-market fit.
Gross Margin
Gross profit divided by revenue, expressed as a percentage. For SaaS, this shows how much revenue remains after direct costs (hosting, payment processing, etc.) before operating expenses.
Unit Economics
The profitability metrics of a single customer relationship: LTV, CAC, payback period, contribution margin. Healthy unit economics predict whether a business can scale profitably.
SaaS
Software as a Service - a software delivery model where applications are hosted in the cloud and accessed via the internet. Subscription-based pricing is typical.
Series A / Series B
Funding rounds. Series A validates product-market fit (typically £1M-£5M). Series B funds growth and scaling (typically £5M-£30M+). Investors evaluate metrics like CAC payback, churn, and ARR growth.
Product-Market Fit
When a product resonates so deeply with customers that word-of-mouth and retention grow naturally without heavy marketing. Indicated by low churn, high NPS, and efficient CAC payback.