Summary
SaaS companies are judged on a specific set of metrics, and investors expect founders to know exactly how each one is defined and calculated. This glossary explains about 45 SaaS terms in seven groups: recurring revenue, churn and retention, unit economics, growth efficiency, sales and pipeline, revenue recognition and cash, and Canadian tax and compliance, including the CRA business number (BN). Each entry includes a formula where it helps, and a worked example shows the core metrics calculated for one Canadian SaaS company.
Every SaaS pitch deck, board pack and investor update leans on the same vocabulary: ARR, NRR, logo churn, CAC payback, burn multiple. Yet the same term can be calculated several ways. One company counts setup fees in MRR, another doesn't. One reports churn monthly, another annually. One calculates LTV on revenue, another on gross margin. Investors in Toronto, Waterloo, Ottawa and Montreal see these differences constantly, and inconsistent definitions are one of the quickest ways to lose credibility in due diligence.
Getting the definitions right matters inside the company too. If the sales team, finance and the board each mean something different by "churn," decisions about pricing, hiring and fundraising rest on shaky ground. A shared glossary keeps everyone working from the same numbers.
This glossary gives Canadian SaaS founders and finance teams clear, standard definitions with formulas, and adds the Canadian tax terms that affect every SaaS financial model. Search for any term below, or read section by section. For general business terms, see our companion glossary of financial modeling terms every business owner should know.
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Why Precise SaaS Definitions Matter
When SaaS models are reviewed in due diligence, definition problems tend to show up in the same places:
Common SaaS metric definition issues in diligence
Illustrative share of issues found
1. Recurring Revenue Metrics
- Monthly recurring revenue (MRR)
- The normalized monthly value of all active subscriptions. Excludes setup, implementation and other one-time fees; annual contracts are divided by 12.
- Annual recurring revenue (ARR)
- The annualized value of recurring subscriptions.Formula: ARR = MRR × 12
- New MRR
- Recurring revenue added from customers who signed up in the period.
- Expansion MRR
- Additional recurring revenue from existing customers through upgrades, extra seats or add-ons.
- Contraction MRR
- Recurring revenue lost when existing customers downgrade but don't cancel.
- Churned MRR
- Recurring revenue lost from customers who cancel.
- Net new MRR
- The overall change in MRR during a period.Formula: New + Expansion − Contraction − Churned
- MRR waterfall (MRR bridge)
- A table or chart showing how MRR moved from the start to the end of a period, broken down by each movement above.
- ARPA / ARPU
- Average revenue per account (or user).Formula: MRR ÷ active customers
2. Churn and Retention
- Logo churn (customer churn)
- The share of customers lost in a period.Formula: customers lost ÷ customers at start of period
- Gross revenue churn
- Recurring revenue lost from cancellations and downgrades as a share of starting MRR.
- Gross revenue retention (GRR)
- Recurring revenue kept from existing customers, excluding expansion. Can't exceed 100%.Formula: 1 − gross revenue churn
- Net revenue retention (NRR / NDR)
- Recurring revenue from existing customers including expansion, divided by their starting revenue. Above 100% means existing customers grow on their own.
- Cohort
- A group of customers who started in the same month or quarter, tracked over time to measure retention and expansion.
- Cohort analysis
- Comparing how each cohort retains and expands, which is more reliable than a single blended churn rate.
- Annualized churn
- Monthly churn compounded over 12 months. 2% monthly logo churn means losing about 22% of customers in a year, not 24%.
3. Unit Economics
- Customer acquisition cost (CAC)
- Total sales and marketing spend to win new customers divided by new customers acquired. Blended CAC uses all customers; paid CAC uses only paid channels.
- Gross margin
- Revenue minus cost of revenue (hosting, support, third-party software, onboarding) as a percentage of revenue. Many SaaS businesses target 70% to 80% or higher.
- Customer lifetime value (LTV)
- The gross profit a customer generates over their lifetime.Formula: (ARPA × gross margin) ÷ monthly churn
- LTV to CAC ratio
- Lifetime value divided by acquisition cost. About 3:1 is a common benchmark; always state whether LTV uses revenue or gross margin.
- CAC payback period
- Months of gross profit from a new customer needed to recover CAC.Formula: CAC ÷ (ARPA × gross margin)
- Contribution margin
- Revenue minus all variable costs per customer, including payment processing and variable support.
4. Growth Efficiency
- SaaS quick ratio
- How much recurring revenue is gained for every dollar lost.Formula: (New + Expansion) ÷ (Contraction + Churned); above 4 is often cited as efficient
- Burn multiple
- Net cash burn divided by net new ARR in the same period. Lower is better; under about 2x is generally considered efficient.
- Rule of 40
- Revenue growth rate plus profit margin (often EBITDA or free cash flow margin) should be at least 40%; commonly applied to more mature SaaS companies.
- Magic number
- A sales efficiency measure: net new ARR in a quarter divided by sales and marketing spend in the previous quarter.
- Burn rate
- Monthly cash spending. Gross burn is total spending; net burn subtracts cash coming in.
- Runway
- Months until cash runs out at the current net burn.Formula: cash on hand ÷ monthly net burn
5. Sales and Pipeline
- Pipeline
- The total value of open sales opportunities, usually by stage.
- Win rate (close rate)
- Deals won divided by deals closed (won plus lost) in a period.
- Sales cycle length
- The average time from first qualified contact to signed contract.
- Average contract value (ACV)
- The average annualized value of a customer contract.
- Quota attainment
- The share of a sales rep's target achieved; used with ramp time to forecast new ARR from sales capacity.
- Ramp time
- How long a new sales rep takes to reach full productivity, often several months.
6. Revenue Recognition and Cash
- Bookings
- The value of contracts signed in a period. Not the same as revenue or cash.
- Billings
- The amount invoiced to customers in a period, which can include prepaid annual subscriptions.
- Recognized revenue
- Revenue earned in the period under accounting rules; subscriptions are generally recognized evenly over the service period.
- Deferred revenue
- Cash received or billed for service not yet delivered, held as a liability until earned. Annual prepaid plans create large deferred revenue balances.
- Remaining performance obligations (RPO)
- Contracted revenue not yet recognized, including amounts not yet billed.
- Free cash flow
- Operating cash flow minus capital spending; for SaaS, often boosted by annual prepayments.
7. Canadian Tax, BN Registration and Compliance
These terms shape how a Canadian SaaS model handles tax, credits and cash. Most connect to your CRA business number.
- CRA business number (BN)
- A nine-digit identifier the Canada Revenue Agency assigns to a business for its federal tax accounts. Investors check it during due diligence.
- BN registration
- Obtaining a business number. Corporations incorporated through the Ontario Business Registry or federally generally receive one at incorporation; program accounts are added through the CRA's Business Registration Online service.
- Program accounts
- Accounts attached to a BN for each obligation.RT = GST/HST, RP = payroll, RC = corporate income tax
- GST/HST on SaaS
- A registered Canadian SaaS company generally charges GST/HST based on where its Canadian customer is located. Many supplies to non-resident customers can be zero-rated if conditions are met. Some provinces also tax software separately.
- Input tax credit (ITC)
- Recovery of GST/HST paid on business costs such as cloud hosting, software and equipment.
- SR&ED
- The Scientific Research and Experimental Development tax credit program for eligible R&D, claimed with the corporate return. Model refunds as a delayed cash inflow, not a monthly cost reduction.
- CCPC
- Canadian-controlled private corporation. Generally needed for enhanced refundable SR&ED credits and the small business tax rate; foreign investment can affect it.
Confirm tax treatment and eligibility with a qualified tax professional.
Worked Example: One Month of SaaS Metrics
A Toronto B2B SaaS company starts the month with 125 customers at an average of $800 a month. During the month, it adds 15 customers, gains expansion revenue and loses some customers and downgrades. It spends $144,000 on sales and marketing and has an 80% gross margin.
| Metric | Calculation | Result |
|---|---|---|
| Starting MRR / ARR | 125 × $800 | $100,000 / $1.2M |
| Net new MRR | $12,000 new + $4,000 expansion − $1,000 contraction − $2,000 churn | $13,000 |
| Ending MRR | $100,000 + $13,000 | $113,000 |
| Logo churn | 2.5 customers ÷ 125 | 2.0% monthly |
| GRR | 1 − ($3,000 ÷ $100,000) | 97% monthly |
| NRR | ($100,000 − $3,000 + $4,000) ÷ $100,000 | 101% monthly (≈113% annualized) |
| SaaS quick ratio | $16,000 ÷ $3,000 | 5.3 |
| CAC | $144,000 ÷ 15 | $9,600 |
| CAC payback | $9,600 ÷ ($800 × 80%) | 15 months |
| LTV and LTV:CAC | ($800 × 80%) ÷ 2% = $32,000; $32,000 ÷ $9,600 | $32,000 / 3.3x |
MRR movements in the example month
Gains of $16,000 against losses of $3,000
For how these metrics drive a full forecast, see our guide to SaaS financial models. To connect them to an integrated income statement, balance sheet and cash flow, read our guide to three-statement financial models for SMEs.
Tips for reporting SaaS metrics consistently
- Write down your definitions and use them in every deck, board pack and model.
- State the period (monthly or annual) next to every churn and retention figure.
- Reconcile ARR to recognized revenue so reviewers can follow the difference.
- Use cohort data once you have enough history, not just blended averages.
- Keep tax items out of revenue: GST/HST collected belongs to the CRA account under your business number.
Frequently Asked Questions
What is the difference between NRR and GRR?
What is a good CAC payback period for SaaS?
What is the burn multiple?
Is ARR the same as revenue?
Do Canadian SaaS companies need a CRA business number?
Summary
Clear, consistent SaaS metric definitions build credibility with investors and keep internal decisions grounded. The core set covers recurring revenue (MRR, ARR, the MRR waterfall), retention (logo churn, GRR, NRR, cohorts), unit economics (CAC, LTV, payback), efficiency (quick ratio, burn multiple, Rule of 40) and revenue recognition (bookings, billings, deferred revenue). Layer in the Canadian details, from your CRA business number and HST to SR&ED and CCPC status, and your model will hold up in any diligence process.
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