SaaS Nomenclature

RevenueThis has come up a few times so it seemed worth putting out there. It’s important to get a consistent set of terms when talking about your business. For example when you say sales do you mean booking or revenue? When you talk about revenue do you mean recurring or total? Is churn net of upsells or is an upsell a new sale? If bookings are the total contract value of everything you sold in a period, how do you normalize for different contract lengths? Are renewals counted in bookings or broken out separately? However you do it, just be sure to be both consistent and clear about what each term means.

Below is something I’ve used for several of our recurring revenue businesses to make sure everyone was talking the same language:

MRR – current monthly recurring revenue (if we had one time revenue, number would exclude it; total revenue includes MRR and any one time or service revenue, etc.)

Bookings (or “Sales”) – the total contracted value sold in the period we’re discussing (so a month to month customer’s “bookings” contribution is 1 month revenue; a 2 year sign-up’s booking value – the full two years; basically it’s what we hit the credit cards for for our new customers)

New MRR – Also a bookings number but this normalizes for the monthly/annual/2 year booking but simply taking the one month value of all the customers sold in the period we’re talking about.

ARR – current monthly recurring revenue times 12

Churn – Monthly value of customers who didn’t renew. I don’t like netting this out of New MRR (as some do). Should be tracked separately.

MRR last month + New MRR – churn should equal next month’s MRR

  • Jason Hall

    I agree about separating out Churn from (net) New MRR. For years the Street has been carefully poring over Netflix’ quarterly churn numbers so it’s definitely an expected metric. Also, analyzing churn rates over time can give great insights into the health (or lack thereof) of the business itself. It’s particularly useful when trying to determine the impact of a change to on-boarding funnels, customer service strategies, re-engagement campaigns, etc.; that impact would be hidden if rolled into New MRR