Basic SaaS Terminology

Question 1

What does SaaS stand for?

Answer 1

Software as a Service

Question 2

What is B2B (an abbreviation for)?

Answer 2

Business to Business

Question 3

What is B2C (an abbreviation for)?

Answer 3

Business to Consumer?

Question 4

What kind of business model is CT?

Answer 4

B2B

Question 5

Define: Revenue

Answer 5

All monies generated from normal business operations (note: NOT “profit” and NOT “cash”)

Question 6

What are other names for “Revenue?”

Answer 6

Sales, Top Line, Turnover

Question 7

What is MRR?

Answer 7

Monthly Recurring Revenue
- Ordinary Subscription Revenue that doesn’t include 1-time fees or services. MRR is the “holy grail” of a SaaS business.

Question 8

What is ARR?

Answer 8

Annual Recurring Revenue.

ARR is what’s actually received in the past 12 months, OR 12 x MRR (Run-rate). The latter is typically more common.

Question 9

What are 3 different types of SaaS contracts?

Answer 9

Prepay, Commit, Month-to-Month

Question 10

What is ACV?

Answer 10

Annual Contract Value aka Average Contract Value

It’s the “Average 1 yr Value” of a customer.

Question 11

What is Churn?

Answer 11

Loss of Accounts or Subscription Revenue

Question 12

What are the 3 types of Churn?

Answer 12

MRR Churn, Logo Churn, Seat(s) Churn

Question 13

What is MRR Churn?

Answer 13

Losing 1 customer out of 10, would be 10% monthly churn)

Question 14

What is Logo Churn?

Answer 14

Losing an entire entities and all its seats

Note: If you are experiencing high logo turn It might be indicative of overall pricing / competitors

Question 15

What is Seat Churn?

Answer 15

Losing seats within a Logo

Question 16

Types of Churn: What is “unavoidable” churn?

Answer 16

Bankruptcy, different business activity, obligation to use parent company’s product, etc.

Question 17

Types of Churn: What is “avoidable” churn?

Answer 17

Competition is better, found a better price elsewhere, they just don’t use it anymore, loss of our champion, missing features.

(Note: What we look at when trying to make CT a better company)

Question 18

What are “Seats?”

Answer 18

Individual licensed users

Question 19

What are “named” seats?

Answer 19

If a Logo loses someone, the seat is non-transferable and thus they have to buy a new seat.

Question 20

What is a “floating license(s)” seat?

Answer 20

if someone leaves, the Logo can give that seat to someone else.

Question 21

What is an “upsell?”

Answer 21

Raising the ACV (Average/Annual Contract Value) by selling more seats or features to existing customers
(Note: CT upsells subscriptions for “renewal”)

Question 22

What is “Cross-sell?”

Answer 22

Raising the ACV (Average/Annual Contract Value) by selling ‘other’ products to existing customers.

(e.g. partnering with a company like quickbooks to offer services or to have them off CT’s services)

Question 23

What are “Inbound Sales”?

Answer 23

Sales that come to you / arrive at your door

Question 24

What are “Outbound Sales”?

Answer 24

When you pick up the phone and/or do proactive outreach to potential customers

Question 25

What is CAC?

Answer 25

Customer Acquisition Cost

The cost to acquire 1 customer.

The simplest definition: all the sales & marketing expenses divided by the # of customers we got. (Note: this is looking at CAC retroactively)

Retrospective vs Marginal

Question 26

What is LTV?

Answer 26

Lifetime Customer Value

Question 27

Explain the importance of LTV > CAC

Answer 27

LTV (Lifetime Customer Value) > CAC (Customer Acquisition Cost)

What a customer will be worth to you on average MUST be with more than the money it will cost to go get them.

Put another way – if your LTV is GREATER than your CAC, each account will be profitable.

Question 28

How do you build a SaaS sales & marketing machine?

Answer 28

The CAC has to be a repeatable process with a high customer acquisition success rate

Question 29

What is the difference between Average CAC & Marginal CAC?

Answer 29

Average CAC shows how much on avg. your company spent per customers acquired. Simple. Total spend / total customers.

However, Average CAC misleads a more crucial input for ad spend decision making:

Marginal CAC: What is the additional cost of acquiring a new customer as spend increases?

Question 30

What is Marginal CAC?

Answer 30

Looking at and calculating the future CAC vs. the historical CAC.

Question 31

What is “Negative Churn?”

Answer 31

Natural Expansion + Upsell + Referral is Greater than organic churn.

Can you create the above that is GREATER than your churn without selling more logos? That’s where real success lives.

Question 32

What are “Dead Seats?”

Answer 32

Customers that buy the software but do not use it.

Right now, CT has about 5k dead seats out of 64k customers.

Question 33

What is Revenue Recognition?

Answer 33

Revenue recognition is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognized and determines how to account for it.

The revenue recognition principle using accrual accounting requires that revenues are recognized when realized and earned–not when cash is received.

(E.g. -You sell 12 months upfront
Do you book it all in month #1? No.
We take the 12 months and hold onto it and account for it monthly throughout the year)

Question 34

What is Accrual-based Accounting?

Answer 34

Accrual accounting is a financial accounting method that allows a company to record revenue before receiving payment for goods or services sold or expenses are recorded as incurred before the company has paid for them.

Put another way – The basic idea behind accrual accounting is revenue recognition. Even if you get paid upfront with an annual plan, you cannot recognize that revenue I your accounts until you ear it throughout the year.

Note: How many people are using our product out there is a much more important measurement than the lump sum of money we’re taking in.

Question 35

Don’t confuse pre-payment with “doing better.”

Answer 35

The money in the bank is not the health of the company. The health of the company is the money we are entitled to monthly.

Question 36

On average, how long does it take CT to recoup the average CAC?

Answer 36

11 months