The Non-MBA's Guide to SaaS Business Terms
A reference for reading your own metrics dashboard, your BRD, and anything else business-side without needing a decoder ring. Organized by category, with a "why it matters" note for each — and a rules-of-thumb section at the end so you can eyeball whether a number is healthy or a warning sign.
1. Revenue Metrics
| Term | Definition | Why it matters |
|---|---|---|
| MRR (Monthly Recurring Revenue) | Total predictable subscription revenue you collect per month | The core pulse-check number for a SaaS business — most other metrics are built from it |
| ARR (Annual Recurring Revenue) | MRR × 12 | Same as MRR, just annualized — used more in investor/board conversations |
| New MRR | MRR added from brand-new paying customers this period | Shows raw acquisition strength |
| Expansion MRR | MRR added from existing customers upgrading, adding seats, or adding products | This is the "expansion" lever from the pricing book — it's often cheaper to grow than new acquisition |
| Contraction MRR | MRR lost from existing customers downgrading | A softer warning sign than churn — they didn't leave, but they're getting less value |
| Churned MRR | MRR lost from customers who cancel entirely | The revenue-dollars version of churn (see below) |
| Net New MRR | New + Expansion − Contraction − Churned | The real number: are you actually growing after accounting for losses? |
| ARPA (Average Revenue Per Account) | MRR ÷ number of paying customers | Tells you your "typical" customer's bill — useful for sanity-checking pricing tiers |
2. Customer & Retention Metrics
| Term | Definition | Why it matters |
|---|---|---|
| Churn (Logo Churn) | % of customers who cancel in a period | Measures how many people are leaving, regardless of what they paid |
| Revenue Churn | % of MRR lost in a period (from cancellations) | A big customer leaving hurts more than a small one — this captures that, logo churn doesn't |
| NRR (Net Revenue Retention) | Revenue from existing customers this period ÷ revenue from those same customers a year ago (includes expansion, contraction, and churn from that cohort — excludes new customers) | The single best "is this business healthy" number to a SaaS investor. Above 100% means existing customers alone are growing your revenue, even with zero new sales |
| GRR (Gross Revenue Retention) | Same as NRR but ignores expansion — only counts contraction and churn | Shows how sticky your base is without the flattering effect of upsells |
| CAC (Customer Acquisition Cost) | Total sales + marketing spend ÷ number of new customers acquired | What it actually costs you to win one customer |
| LTV (Lifetime Value) | ARPA ÷ Monthly Churn Rate | The total revenue you can expect from one customer over their whole time with you |
| LTV:CAC Ratio | LTV ÷ CAC | The classic "is this business viable" ratio — see rules of thumb below |
| CAC Payback Period | How many months of a customer's revenue it takes to recoup what you spent acquiring them | Shorter = you get to reinvest that cash sooner |
| Conversion Rate (Trial-to-Paid) | % of trial signups who become paying customers | Tells you if your product/onboarding is actually closing the deal, not just attracting lookers |
| Cohort | A group of customers who all started in the same period (e.g., "everyone who signed up in March") | Tracking cohorts over time is how you see when people tend to churn, not just that they do |
| NPS (Net Promoter Score) | Survey score (-100 to 100) based on "how likely are you to recommend us?" | A rough proxy for customer satisfaction and word-of-mouth potential |
| DAU / MAU (Daily / Monthly Active Users) | Unique users who actually use the product in a day/month | Usage, not just paying status — a customer can pay and not actually use the product, which is a churn risk hiding in plain sight |
3. Profitability & Financial Health
| Term | Definition | Why it matters |
|---|---|---|
| Gross Margin | (Revenue − COGS) ÷ Revenue | What's left after the direct cost of serving a customer (hosting, infra) — the ceiling on how profitable you can eventually be |
| COGS (Cost of Goods Sold) | Direct costs to deliver the product — for SaaS, mainly hosting/infra, third-party API costs, customer support | The "cost per tenant" number from your BRD is a COGS figure |
| OPEX (Operating Expenses) | Everything else: salaries, marketing, tools, rent | Costs that don't scale directly with each new customer |
| Burn Rate | How much cash you're losing per month (expenses minus revenue) | Only relevant once you have outside capital or savings funding the business — tells you how much runway you have |
| Runway | Cash on hand ÷ monthly burn rate | How many months until you run out of money at the current burn rate |
| EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization | A rough "how profitable is the core business" number, often used to compare companies regardless of how they're financed or taxed |
| P&L (Profit & Loss Statement, aka Income Statement) | A summary of revenue, costs, and profit over a period | The core "are we making money" report |
| Cash Flow | Actual cash moving in and out of the business | Different from profit — you can be "profitable" on paper but still run out of cash if customers pay late |
| AR / AP (Accounts Receivable / Payable) | Money owed to you / money you owe | Relevant once you have invoicing with payment terms, not simple monthly credit-card billing |
| Rule of 40 | Growth rate % + profit margin % should add up to 40 or more | A quick gut-check some investors use — fast growth can excuse thin margins, and vice versa |
4. Fundraising & Equity (relevant if TinySeed or any outside capital comes up)
| Term | Definition | Why it matters |
|---|---|---|
| Cap Table (Capitalization Table) | A ledger of who owns what % of the company | The master record of ownership — gets more complex every time you raise money or add a co-founder |
| Dilution | Your ownership % shrinking because new shares were issued to someone else | The direct cost of raising outside capital — 10% to an investor means your slice of the pie got smaller |
| Equity | Ownership stake in the company, usually represented as shares/stock | What you're trading for capital or giving to a co-founder/early employee |
| Vesting | Equity that's earned gradually over time (commonly 4 years, with a 1-year "cliff") rather than granted all at once | Protects the company if a co-founder or employee leaves early |
| SAFE / Convertible Note | Early-stage investment instruments that convert into equity later, usually at your next priced round | Common for pre-seed investing — investment now, ownership % decided later |
| Pre-money / Post-money Valuation | The company's agreed value before / after new investment is added | Determines how much equity a given investment amount buys |
| Seed / Series A | Early funding stages, roughly in order of company maturity (Seed → A → B → C...) | TinySeed operates in the seed-ish stage; each later round is typically larger and more dilutive |
| QSBS (Qualified Small Business Stock) | A tax benefit that can make gains from selling C-corp stock partially or fully tax-free, if held long enough | Only available to C-corp stock — one of the real reasons founders convert from LLC |
| Accredited Investor | An individual/entity meeting income or net-worth thresholds, legally allowed to invest in private companies | Most startup investors (including TinySeed's backers) are required to be accredited |
| ARR Multiple | A company's valuation expressed as a multiple of its ARR (e.g., "5x ARR") | A common shorthand for what a SaaS company might be worth |
5. Company Structure
| Term | Definition | Why it matters |
|---|---|---|
| LLC (Limited Liability Company) | Your current structure — pass-through taxation, simpler compliance | Profit is taxed once, on your personal return |
| C-Corp | A corporation taxed separately from its owners | Required for most outside equity investment (like TinySeed); enables QSBS, stock option pools |
| S-Corp | A tax election (not a separate entity type) that gives pass-through taxation to a corporation, with restrictions on shareholder count/type | Rarely used for venture-backable startups — mentioned here mainly so you recognize the term |
| Pass-through Taxation | Business profit is taxed once, on the owners' personal returns | What your LLC has now |
| Double Taxation | Profit taxed at the corporate level, then taxed again when paid out as dividends | The trade-off of C-corp status |
| Franchise Tax | An annual state fee for the right to be incorporated there, unrelated to actual profit | Delaware charges this regardless of whether you're making money |
6. Market Sizing (useful for pitches, investor conversations, or just your own strategic thinking)
| Term | Definition |
|---|---|
| TAM (Total Addressable Market) | The total revenue opportunity if you captured 100% of the market — e.g., every trades business in the US |
| SAM (Serviceable Addressable Market) | The slice of TAM you could realistically reach with your business model — e.g., trades businesses with 1–25 techs |
| SOM (Serviceable Obtainable Market) | The slice of SAM you can realistically capture in the near term, given competition and resources |
7. Rules of Thumb — "Is my company healthy?"
These are general SaaS industry benchmarks, not guarantees — treat them as a sanity check, not gospel:
| Metric | Healthy range | Red flag |
|---|---|---|
| LTV:CAC Ratio | 3:1 or better | Below 3:1 means you're spending too much to acquire customers relative to what they're worth |
| CAC Payback Period | Under 12 months | Longer than that ties up cash for a long time before a customer becomes profitable |
| Monthly Logo Churn (SMB SaaS) | Under 2–3% | SMB churn is naturally higher than enterprise — above 3–5% consistently is worth investigating |
| Gross Margin (SaaS) | 70–85%+ | Well below that suggests infra/hosting costs are eating too much of each dollar |
| NRR | 100%+ is good, 110%+ is excellent | Below 100% means you're losing ground with existing customers even before counting new sales |
| Rule of 40 | Growth % + Profit Margin % ≥ 40 | Consistently well under 40 can signal the business isn't yet efficient at either growing or turning a profit |
Your own BRD already sets specific targets for RoundTrip (Month 12 / Month 36) that are more precise than these general benchmarks — use this table for gut-checks and the BRD's numbers as the actual plan.
How to actually use this
When you're looking at the metrics tracker or a monthly review, the fastest health check is usually: is Net New MRR positive, is NRR above 100%, and is LTV:CAC above 3:1? If those three are solid, the underlying mechanics of the business are working even if the absolute numbers are still small.