Financial Terms

A

ARR (Annual Recurring Revenue)

The normalized annualized revenue from your subscription customers.

• Note: This is not just 12x your current month's revenue if your revenue is lumpy. It is strictly the value of active contracts.

B

Burn Rate

The rate at which a company spends its cash supply.

• Gross Burn: Total cash expenses.
• Net Burn: Total cash expenses minus cash revenue.

C

Churn Rate

The percentage of customers (or revenue) lost during a specific period.

• Logo Churn: Percentage of customers who cancelled.
• Revenue Churn: Percentage of revenue lost (includes downgrades).

E

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization.

• A proxy for the operating profitability of a business, stripping away the effects of financing and accounting decisions.

G

Gross Margin

The difference between Revenue and Cost of Goods Sold (COGS), expressed as a percentage.

• SaaS Benchmark: Investors typically look for 80%+ gross margins in software companies.

M

MRR (Monthly Recurring Revenue)

The predictable revenue generated by your business every month from active subscriptions. Excludes one-time setup fees or consulting services.

R

Runway

The number of months a startup can operate before it runs out of cash.

• Formula: Current Cash Balance / Net Burn Rate