Glossary

SaaS & AI economics, defined

The terms we use in MarginMeter, with formulas and the pitfalls that make dashboards disagree.

ARPA: Average MRR per paying customer.
ARR: Annualized recurring revenue: MRR multiplied by twelve.
CAC: Sales and marketing spend per new customer.
Churn: Customers or recurring revenue lost in a period.
COGS: The direct cost of delivering your product to existing customers.
Contribution margin: Revenue minus all variable costs, including variable sales costs.
Expansion MRR: MRR added by existing customers through upgrades or more seats.
FinOps: The practice of managing cloud spend with engineering, finance and business together.
FOCUS: An open standard format for cloud and SaaS billing data.
Gross margin: The share of revenue left after cost of goods sold, as a percentage.
Gross profit: Revenue minus cost of goods sold, in currency.
GRR: Recurring revenue kept from existing customers, excluding expansion.
LTV: Gross profit expected from a customer over their lifetime.
MRR: The monthly value of all active subscriptions, normalized to one month after discounts.
NRR: Recurring revenue kept from existing customers, including expansion, over a period.
Payback period: Months of gross profit needed to recover acquisition cost.
Payment processing fees: What payment providers charge per transaction, usually a percentage plus a fixed amount.
Token: The unit LLM providers use to measure and price text.
Unblended cost: AWS cost at the rate actually charged on the day of usage.
Unit economics: Revenue and costs per unit — customer, user or request.