It’s time to master the art of SaaS acronyms. If you’re sick of feeling behind the curve in the ever-changing field of software and tech, it’s time to take this masterclass right to the top. Read on to learn more about how you can add more SaaS to your vocabulary without going (slowly) insane.
What is SaaS, anyway?
SaaS stands for Software as a Service and is an umbrella term for tools you use online every day. Looking for good examples? Think of top-tier software solutions like:
… and thousands more common tools that your business uses regularly.
How to speak the language
It’s time to churn down for what and learn how to speak like a pro… in under three minutes.
When you hear “churn” in the tech world, you can assume that it isn’t about butter or ice cream. Churn can happen across any industry, and is used to describe the number of subscriber cancelations a business has in any given time period.
You can’t just look at churn rate as a surface metric, though. There are a variety of factors that can cause the current rate of churn, so it’s important to use proper customer study techniques to understand why people are unsubscribing. That way, you can strategize, adapt, and overcome.
MRR is one of the most important elements of measurement in your SaaS business. This acronym stands for Monthly Recurring Revenue and is critical to your success. You’ll use MRR as a measurement to base future projections on and also as a signal of business viability to your stakeholders and investors. (This is also known as your business’s chances of survival, which is very important when it comes to purchasing decisions.)
LTV stands for Lifetime (Customer) Value and is a rough calculation of the average customer’s contribution to your bottom line over time. You can use this along with the churn calculation to determine how well your business is actually doing—both elements can contribute to your MRR calculation, now and in the future.
ARPU is a measurement that’s related to LTV. The acronym stands for Average Revenue Per User and is determined over a set timeframe. For many businesses, this can look like measurements taken at semi-regular intervals, including:
You can also set customized review parameters to get the most accurate measurements possible for your business.
CAC is a marketing term and is known as Customer Acquisition Cost. This answers your questions about how much it costs to turn a prospect into a full-paying customer. The costs can vary depending on how many paid initiatives you currently have (across all channels), as well as how optimized and tailored your campaigns are for your target audience. Depending on the cost of your product, your CAC value can skew higher or lower.
MAU stands for Monthly Active User. This measurement determines how many users have interacted with your app meaningfully (i.e., actually using it for its purpose and value, not accidentally clicking on it). MAU is often determined periodically for reporting purposes and can be used across marketing reports to determine if your product or service engages the customer and aligns with your expectations.
After you determine your MAU, you can act accordingly. If it’s higher, you can determine how to refine and optimize your marketing stuff even more to win lifetime users and continue profiting from your current base. If you’re skewing lower, you can determine where your marketing campaigns are going wrong, and try new tests and versions to get users actively engaging with the content.
In this case, MVP does not stand for Most Valuable Player (although if we had to pick, we’d choose you). In SaaS, MVP stands for your Minimum Viable Product, a.k.a. the smallest or most basic offering you need to put out to deliver value or significantly profit. You can have a variety of MVPs if you have different types of SaaS products, but most businesses start with just a single one.
This tells you the core offerings that you must keep to meet the needs of your user base. Sure, the extra features are nice, but they’re like bread and butter to an already-hearty steak dinner.
Finally, we close off our list with TAM— the Total Addressable Market. This tells you how many people you have to potentially reach in a current market sector, and generally skews large as we become more digitally focused as a population.
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