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SaaS Terms and Definitions

What is your ACL ACV CAC ratio of your Net MRR? 

Did nobody ever asked a CEO of a SaaS company

But imagin if somebody did 😉

That is why I wrote this blog, to keep you updated on all the SaaS Terminology

In this blog, we decided to break down all Software-as-a-Service (SaaS) Terms and Definitions we could find online.

Note: I copied these terms from different blogs and kept the original text. At the buttom of the blog I have added all the sources.

SaaS Terminology

Average Customer Life (ACL): The total time (in days) of a relationship between a customer and the company. It measures an average number of days (or months) between the day a prospect becomes a customer and when the customer churns (or cancels).

Annual Contract Value (ACV): is an average annual contract value of your account subscription agreements. For companies that also charge one-time fees in conjunction with recurring fees, the first-year ACV might be higher than later-year ACVs in a multi-year contract.

Average Selling Price (ASP): The amount of revenue per customer generated.

Break-even: A point when a company generates enough revenue from a customer to cover all the costs and expenses it took to acquire this customer.

Contextual Engagement: This happens when the right customer receives the right messages at the right time through the right channel.

Customer Acquisition Cost (CAC): The average amount that a company spends to acquire a single customer. CAC is the sum of all customer acquisition costs, including sales and marketing expenses (and salaries), divided by the number of customers acquired during the same period. 

Customer Behavior Index (CBI): A metric (often normalized) that measures how engaged your prospects and customers are based on their in-product activity and usage.

Customer Churn Rate: A percentage of customers lost due to churn (cancellation or failure to renew). It is calculated by dividing the number of churned customers by the number of customers at the start of the period for which churn rate is calculated.

Customer Engagement Touchpoint (or Customer Engagement Interaction): A single moment when a prospect or customer comes in contact with your brand, company, people, product, or message through various channels and devices.

Customer Experience (CX): A customer’s perception about a company, brand, or product, based on all touchpoints, interactions, and engagements.

Customer Experience Era: The third wave of SaaS, where customers now research, evaluate, select, and share experiences that feel more like consumer experiences, including multiple touchpoints and interactions.

Customer Experience Strategy: An ongoing process of assessing and managing customer experiences across the customer lifecycle.

Customer Journey: A series of all touchpoints a customer has with a company, brand, and product to reach a certain milestone.

Customer Lifecycle: A framework that describes the process a customer goes through when considering, buying, using, and advocating a product or service. There are four critical stages: acquisition, adoption, retention, and expansion.

Customer Lifetime Value (CLV): A prediction of the net profit attributable to the entire future relationship with a customer. It is the revenue generated from customers between the time the company reaches the break-even point with them and the end of the relationship with them.

Customer Onboarding: The process of getting a newly subscribed customer (or account) up and running effectively with your product, including training, account and team member setup and assistance with integrations. The goal here is to set up the customer to realize the full value of your product, thereby retaining customers while also expanding business within the account, or getting referrals from your happy customers. 

Customer Satisfaction Metrics: Shows how engaged customers are, how much value they derive from your product, and whether they will recommend your solution to peers. Customer satisfaction reflects how a customer perceives the value and experience with your company, brand, and product. A few examples of metrics in this category include Net Promoter Score (NPS), Customer Behavior Index (CBI), and Customer Lifetime Value (CLV).

Days to Break-Even: Measures the average number of days it takes a customer to generate enough revenue to cover the CAC. In other words, it shows how quickly a company recovers its CAC. 

Days from PQL to Customer: Measures the average number of days it takes a PQL to become a customer. 

Days from Signup to Customer: Measures the average number of days it takes a prospect to become a customer. 

Days from Signup to PQL: Measures the average number of days it takes a prospect to become a PQL. 

Digital Transformation: The change associated with the application of digital technology to all aspects of human society. 

Engagement Loop: A practice of using insightful in-product usage data, along with engagement tactics, to influence prospects and customers to re-engage with the product and experience more value. 

Free Trial: A customer acquisition strategy that provides a partial or complete product to prospects free of charge for a limited time. Typically, a free trial runs for 14 or 30 days.

Freemium: A customer acquisition strategy that provides access to part of a software product to prospects free of charge, without a time limit. A freemium product does not limit the amount of time a prospect can access the software, but often limits users in some way such as through stripped-back features or allowed amount of usage.

Go-To-Market (GTM) Strategy: An action plan that describes repeatable and scalable processes for how a company acquires, retains, and grows customers.

In-Product Call To Action (CTA): This reveals prospects’ buying intentions and helps to drive prospects to PQLs or conversion events.

Initial Value Unit: An engagement or set of engagements that advance the customer through a core use case.

Loyalty Loop: A continuous process of delivering substantial value and customer experience to keep customers using the product, adopting new features, increasing usage, and renewing.

Moment of Joy: The time when a prospect feels the value in the product. Similar to the Moment of Truth; especially popular in the gaming industry. Successful product-led conversion connects moments of joy with recognition and rewards when a user performs a desired action.

Moment of Truth (MOT): In marketing, the moment when a customer/user interacts with a brand, product, or service in a way that serves to form or change an impression about that brand, product, or service.

MRR Churn Rate (a.k.a. Gross Revenue Churn): A percentage of MRR (Monthly Recurring Revenue) lost from existing customers at the start of the period for which MRR churn is calculated. MRR churn rate is always positive (positive churn rate means the company loses money), because it does not include upsell and cross-sell. 

MRR Expansion Rate (a.k.a. Net Revenue Retention Rate): The percentage of MRR that is gained due to upsells and cross-sells to existing customers for the period for which MRR expansion is calculated. It is calculated by dividing the amount of expansion MRR by the starting MRR.

Net MRR Churn (a.k.a. Net Revenue Churn): The percentage of MRR change based on churned and expansion MRR for the same period. It is calculated by subtracting expansion MRR from churned MRR and dividing that by MRR at the start of the period. Net MRR churn is the percentage of MRR lost from existing customers in a period.

Non-Product Engagements: All of the interactions that prospects have outside of your product. See “Product Engagements.”

Omnichannel Approach: Companies create contextual engagements with customers that look and feel the same across channels and devices. 

Personalized Customer Experience: An ongoing process of designing and delivering targeted messages and experiences that create meaningful customer engagements.

PQL-To-Customer Rate: The percentage of PQLs that convert to customers. It is calculated by dividing the number of customers by the number of PQLs. The PQL-to-customer rate shows how effectively your company converts PQLs to customers. 

Product Champion: The person who has the highest level of engagement with your product, and has a good understanding of who will be using your product in his/her organization, as well as which roles each user has.

Product Engagements: All of the interactions that prospects have inside of your product. See “Non-product engagements.” 

Product-Led Go-To-Market Strategy: An action plan that describes repeatable and scalable processes for how a company acquires, retains, and grows customers, driven by in-product customer behavior, feedback, product usage, and analytics. 

Product Lifecycle: A framework that helps a company organize its marketing and sales of a product, from introducing it to the market to when sales peak and decline. 

Product/Market Fit: An experimentation process of finding customers in a target market with a problem that your product can address for a price (or total cost of ownership) well below the level of value that’s provided in exchange. A broader but related concept, company/market fit, combines pain-product fit and customer-message fit ideas. 

Product-Qualified Lead (PQL): A prospect that signed up and demonstrated buying intent based on product interest, usage, and behavioral data.

Prospect (user) onboarding: How a prospect moves through initial sign up, experiences initial value, and reaches PQL status. It is designed to help users become familiar with the product and realize initial value as soon as possible.

Signup-to-Customer Rate: The percentage of signups that become paying customers. It is calculated by dividing the number of customers by the number of signups. The signup-to-customer rate shows how your company, on average, converts signups to customers.

Signup-to-PQL Rate: The percentage of prospects that complete profile and in-product engagement requirements to become product qualified leads (PQLs). It is calculated by dividing the number of PQLs by the number of signups. The signup-to-PQL rate provides insights into how effectively your company engages prospects in the early stages of reaching initial value.

Note: In some cases, it makes sense to analyze signup-to-PQL rate in terms of individual and account signups.

Unified Customer Profile Data: Your organization’s system of record for all customer profile, company, and behavioral data.

Value Gap: The discrepancy between what a customer expects from the product and the value received or perceived.

Value-Based Pricing: This involves knowing which product features customers value most.

Valued (Golden) Features: These help companies understand which product capabilities deliver customer value and fill the Value Gap. The idea also provides a mechanism to know which customers receive value from product features, and which customers are not engaged at key stages in their lifecycle.

Velocity Metrics: Describes how long it takes a company to achieve certain milestones. This includes the average number of days it takes a prospect to go from signup to becoming a PQL, and the average number of months it takes a company to break even (when CLV>CAC).

Visitor-to-Signup Rate: The percentage of visitors that visit your page and then sign up. It is calculated by dividing the number of product signups by the number of visitors to a signup page. The visitor-to-signup rate shows how effectively your company convinces visitors to sign up for free trials or a freemium. 

Zero Data (Empty State): What a prospect sees during their initial signup process when no data is available in the product. To address this, guide the prospect through a journey that populates, uploads, or integrates data to a product.

Sources:

https://www.inturact.com/blog/acv-annual-contract-value-vs-arr-annual-recurring-revenue

https://intrinsicpoint.com/saas-glossary-terms-and-definitions-569dba84c024

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