19 SaaS acronyms you need to know

Outline

Introduction
Introduction to SaaS acronyms and the other types of “aaS”
SaaS and getting financial with it
Sales, marketing and SaaS
Next steps

Like?

Consider sharing.

Introduction to SaaS acronyms and the other types of “aaS”

That’s right, there are plenty more variations of backend cloud architecture than the acronym SaaS. Here’s your cheat sheet for all the other acronyms and their meanings.

1. Software as a Service (SaaS)

Let’s walk before we can run and start with the basics. As you’re reading the definition below, we want you to think of some very common SaaS companies - Slack, Zoom and yours truly… Ortto!

SaaS is a business model where the software is accessed over the internet, rather than installing and maintaining the software on your own device.

This method of accessing software means that you, as a customer, simply need an internet connection to use a third-party’s software. Say goodbye to the days of installing hardware and endless updates on your computer.

Other benefits include:

Integration with other apps
Compatible across multiple platforms
Flexible payments
Automatic updates

2. Infrastructure as a Service (IaaS)

Unless you’re part of a development team or working closely with one, then IaaS won’t really register high on your day-to-day knowledge.

IaaS provides the basic infrastructure needed to support the performance of SaaS and PaaS. It supplies resources — compute, storage and networking — needed for the running of operating systems or applications, all through cloud computing.

You may know IaaS from Google Cloud or Microsoft Azure.

3. Platform as a Service (PaaS)

PaaS provides a foundation for developers to build, host and deploy consumer-facing applications. Developers don’t need to worry about storage or management when using a PaaS product.

4. Storage as a Service (STaaS)

Think of STaaS as a division from infrastructure. The user can purchase digital storage capacity when they need it, saving them from purchasing and installing their own hard hard drives and data centers.

One of the most popular StaaS used currently is Dropbox, and if you haven’t heard of it yet… Well, thank goodness we found you from that rock you were hiding under.

5. Desktop as a Service (DaaS)

Imagine having the flexibility to connect to a virtual desktop on any device from anywhere. This is DaaS, it’s a form of virtual computing to provide cloud work spaces to remote users.

The Infrastructure, network resources and cloud storage are all hosted by the cloud services provider. It is then streamed through a virtual desktop to the end user’s device. All the data and applications can then be accessed through the web browser or other software.

Amazon workspace and Azure are both popular DaaS platforms.

SaaS and getting financial with it

Now we are moving into the financial side of SaaS. All your key SaaS business terms and their acronyms are found below, and - get your calculators out — we’ve even supplied the calculations for each of these SaaS Acronyms.

6. Annual Contract Value (ACV)

You may also see it as Total Contract Value (TCV). It is best described as the total dollar amount the average customer generates for the company annually. Or how much that customer is worth to your company.

This can be especially helpful if you have a monthly subscription plan or a tiered-price plan.

An example: Customer A signs up for a 2-year contract for $10,000, then your Annual Contract Value will be $10,000/2, i.e. $5,000.

7. Annual Recurring Revenue (ARR)

If your company works with an annual payment plan, then using the metric ARR - Annual Recurring Revenue is recommended. This metric will allow you to view the revenue generated per year.

ARR is calculated by adding all the annual values of your subscription revenue. Generally speaking, it is the sum of all new subscriptions (including all plan upgrades or expansions) minus the customers who have left your subscription, or canceled.

Klipfolio Metric HQ delves further into the difference between ACR and ARR.

8. Monthly Recurring Revenue (MRR)

The MRR will show the total revenue your clients bring in from your monthly subscription. It’s also important to note, other company revenue streams such as training products or professional services are generally excluded from MRR.

If your company offers a variety of price plans and billing periods, the MRR metric provides an average of the above, helping you to track the trend over time.

If your company works with an annual payment plan, then using the metric ARR - Annual Recurring Revenue is recommended. Klipfolio Metric HQ delves further into the difference between ACR and ARR.

9. Customer Lifetime Value (CLV) / Lifetime Value (LTV)

Both CLV and LTV can be used interchangeably. Knowing your CLV/LTV will allow you to see the estimated total revenue generated over a client’s lifecycle.

The CLV/LTV will allow you to make better decisions around your marketing costs and identify the best SaaS marketing channel to fit your customer.

Let’s go into an example. Each of your customers will spend $500 in monthly subscription services, and your typical customer stays for 2 years. So, your CLV will be $12,000

10. Average Revenue Per User (ARPU)

This SaaS metric shows the profitability of your product by seeing the amount of revenue generated per client or subscriber. This will provide an easy way to track the continuous annual growth of your company.

Say your total revenue is $40,000 per month, and you have a total of 500 subscribers. This will mean your ARPU is $80.

Note: make sure you define the time period when using this calculator. The most commonly used is monthly.

11. Average Revenue Per Account (ARPA)

This is the average monthly recurring revenue (MRR) per account, providing a more granular look at your company's profitability. It's calculated by dividing the total MRR by the number of total accounts.

This may look similar to ARPU, however ARPU is the average per user. The difference being if your platform allows for multiple users within the account. For example, different Ortto plans will allow for a number of users. ARPA measures only the number of accounts rather than the amount of users.

12. Daily Active Users (DAU)

This has been known to be a bit of a vanity SaaS metric, however both MAU and DAU both provide great insight on the ‘health’ of your business.

Before you start measuring your DAU and MAU, it’s important to define what an active user looks like for your company. Your active user needs to fit in with your SaaS product and its capability. For example, simply logging on may be too generic as a reporting metric, so your active user may be defined as the user completing a task, creating a report or sharing with friends.

Daily Active Users are simply the total unique users each day. The DAU calculation includes new users who have used the SaaS product for the first time (downloaded or subscribed) plus existing users who log in to use the product.

It’s important to note that DAU should not be used as a standalone metric. Look at it in combination with other SaaS metrics, to see the engagement levels of users and how valuable your users are finding the product.

13. Monthly Active Users (MAU)

Monthly Active Users are unique, new users who have opened and engaged with your product over the last month (30-day period). If they have signed up for the first time, but use the product multiple times over the month, they are only counted once.

MAU provides clarity over being able to attract and retain subscribers during a 30-day period.

Sales, marketing and SaaS

The ultimate guide to SaaS acronyms and terminologies would not be complete without the sales and marketing key SaaS metrics. An important touchpoint to track the success or areas of improvement of your SaaS product.

14. Customer Acquisition Cost (CAC)

The Customer Acquisition Cost refers to the business cost to acquire a new customer, including all sales and marketing activities.

Approximately, 92% of first-year revenue from SaaS businesses will be spent on acquiring customers. Meaning it will take the company 11 months to pay back the cost of acquiring new customers.

As a business owner in the SaaS industry it’s important to understand your CAC, and focus on acquiring the right customer. The dream customers are those with a low acquisition cost, but have a high lifetime value.

15. Return On Advertising Spend (ROAS)

The name can give it away, but this SaaS marketing metric measures the generated revenue for every dollar spent on advertising.

This metric provides an overall look at the monetary success of the advertising campaign as a whole. It can get a little tricky in finding the exact amount of revenue earned per ad campaign, especially these days where attributing sales to specific ads and marketing channels will require additional data crunching.

16. Click-Through Rate (CTR)

It’s all about the clicks! The CTR is the ratio of user clicks on a specific link to the number of total users who viewed the page, email or advertisement.

This metric is generally used in measuring the success and effectiveness of online advertising and email campaigns.

Report

Email click rate

Use this report

17. Customer Retention Cost (CRC)

The cost of retaining the existing customer. Once you have your customer on board it’s vital to continue to nurture them. This can come in an array of different activities from training, customer marketing and service support - all of which will contribute to the business costs that need to be considered when calculating a CRC.

Businesses that dedicate time and resources to retaining existing customers at different life cycle points find that scalability goals are far more easily reached.

No one wants to have the red carpet rolled out only when there are a few weeks left before the expiration of a contract term.

18. Churn

While it may not be considered an acronym, churn is an important metric to understand in the SaaS world.

Churn is summarized as the rate at which customers cancel their recurring subscriptions over a specific time period.

It’s the metric needed to work out the health and stickiness of the product. The higher the churn, the more your team needs to work on retention. Churn is presented as a percentage. For example, Company A has a churn rate of 30%, indicating that 30 out of 100 subscribers have canceled their subscription, over a given period of time.

19. Burn Rate

The burn rate is the amount of money the SaaS company is losing over a period of time, usually represented monthly. This includes total expenses - marketing, R&D, cost of goods even general administration.

This is one SaaS metric that is much more relevant to startups, as they are not generating any money and simply “burning” through their cash reserve. The burn rate can indicate what the company's’ overall lifespan will be.

There are two different types of burn rate - Net Burn Rate and Gross Burn Rate.

Your Gross burn rate is the sum of your company’s expenses over a specific period of time.

Your Net burn rate is the sum of your company’s revenue minus the total expenses. A negative net burn rate occurs when the company is spending more than it is earning.

Total revenue – Gross burn (total expenses) = Net burn (cash flow)

Next steps

Wow, you made it! You are officially upskilled in SaaS acronyms and terminologies vocab. We recommend bookmarking, so your SaaS acronym support tool is only a click away.

Want more? While we have covered the key Saas Metrics - there are some other acronyms that may pop up.

Download our SaaS Acronym Cheat Sheet.

Now with your newfound understanding, hit the ground running with meaningful conversations on the world of SaaS.