Understanding SaaS: The Ultimate Guide to SaaS Terms that You Need to Know

Understanding SaaS: The Ultimate Guide to SaaS Terms that You Need to Know

This post covers glossary terms for Software as a Service (SaaS). SaaS is a cloud-based software delivery method in which a service provider hosts applications or software on a subscription basis, and makes them available to customers through the internet.

In today’s modern world, SaaS is taking over the cloud computing market. It has been predicted that the service-based cloud application industry will be worth $143.7 billion by the year 2022. Like every industry, software development and the service-based cloud application industry have unique technical jargon, terminologies, and abbreviations. While the list of SaaS abbreviations and terminologies is extensive, and new terms and jargons are added all the time – this post focuses on the most used and relevant terms within the industry. Being familiar with these terms will help guide your business.

With big productions, you can sometimes get lost with the terminology and all the different departments.” – Rose Leslie

A

Agile

A design methodology that promotes working through small, iterative and incremental design cycles alongside autonomous and cross-functional teams.

Annual Recurring Revenue (ARR)

The total recurring revenue that a product generates, through subscriptions, per calendar year.

Average Customer Life (ACL)

An average measure of the days or months in which a relationship is held between a customer and the company – the timeframe regarding when a prospect becomes a customer and when that customer leaves.

Average Sale Price (ASP)

The average amount of revenue generated per customer – related to weekly, monthly, or yearly subscriptions.

“It is clear enough that you are making some distinction in what you said, that there is some nicety of terminology in your words. I can’t quite follow you.” – Flann O’Brien

B

Balanced Team

A self-organized and cross-functional team that includes a variety of job roles and skills, to help ensure that products are meaningful and valuable to both customers and businesses.

Blocker

An issue that delays or prevents a project’s progress, and needs resolve.

Bookings

The total monetary value of contracts or deals which were obtained during a set period of time.

Break-even

The point at which a company generates enough revenue, via customers, to cover its customer acquisition costs and expenses.

Build, Measure, Learn

A continuous and iterative feedback cycle used to test small incremental design solutions in order to build solutions that provide the most value and meaning.

Burn Rate

The monthly rate at which a new company spends its capital prior to becoming profitable.

“By words we learn thoughts, and by thoughts we learn life.” — Jean Baptiste Girard

C

Call to Action (CTA)

A marketing prompt that encourages a product’s users to perform a specific action using a written and/ or visual message.

Cloud Portability

Refers to the ability to move applications and user data from one cloud computing environment to another with little to no disruption.

Cloud Spanning

A cloud delivery technique that interlinks cloud services, by redistributing large pools of commuting resources from one application to multiple cloud environments, including private, public, and hybrid.

Cloud Sourcing

The delivery or outsourcing of the application assets of a business to a provider using the cloud.

Cloudware

An alternative name for cloud software or apps that run over the internet.

Cohorts

A group of customers that share a common characteristic – often a shared subscription date or product onboarding date.

Cold Call

An approach used to make contact with prospective customers who have no prior experience with a specific business or product.

Committed Monthly Recurring Revenue (CMRR)

A prediction of the recurring monthly revenue of a business or product, in order to anticipate account expansion and the customer churn rate.

Contextual Engagement

A personal and relevant way of communicating with customers, based on customer understanding, that ensures customers receive the right message, via the correct channel, and at the right time.

Continuous Integration

An automated software development practice that integrates, tests, and delivers small chunks of software from the development team on a continuous basis to ensure each piece is functional and properly fits together.

Contracted Monthly Recurring Revenue

Recurring revenue that is guaranteed by monthly contracts.

Customer Acquisition Cost (CAC)

The average amount of money that a company invests in the acquisition of a single customer, including sales and marketing expenses.

Customer Behavior Index (CBI)

Measures the engagement level of current customers and prospective customers, according to their in-product usage and activity.

Customer Churn Rate

The percentage of customers that are lost over a set period of time, due to issues like service cancellation and failure to renew.

Customer Engagement Touchpoint

The initial moment, when a prospective customer is exposed to a company, product, or brand message through any channel or device.

Customer Experience (CX)

A customer’s perception about a company, brand, or product, based on all touch points, interactions, and engagements.

Customer Experience Era

The third wave of SaaS, where customers now research, evaluate, select, and share experiences that feel more like consumer experiences, including multiple touch points and interactions.

Customer Experience Strategy

An ongoing process of assessing and managing customer experiences across the customer lifecycle.

Customer Interaction

The communication process between a customer and a company or product.

Customer Journey

A series of every touchpoint that a customer has with a company, brand, and product while achieving a set goal.

Customer Lifecycle

A series of phases that a customer goes through when interacting with a product or service. The Customer Lifecycle is often broken down into five phases: (1) reach, (2) acquisition, (3) adoption, (4) retention, and (5) expansion.

Customer Lifetime Value (CLV)

A prediction of the total worth that a customer generates for a business throughout their entire relationship.

Customer Onboarding

The process or series of steps and resources that help customers learn to interact with a new product or service and stay engaged, making the incorporation of a product into a customer’s routine as easy as possible.

Customer Renewal Rate

The rate at which existing customers renew their subscriptions.

Customer Retention Costs

Marketing, renewal, promotional, and other service costs associated with retaining existing customers.

Customer Retention Rate

A metric used to measure product growth, by calculating the percentage of first-time customers that return in subsequent time periods.

Customer Satisfaction Metrics

A metric used to measure the satisfaction level of customers in relation to a product.

D

DaaS (Desktop as a Service)

A cloud computing service (also referred to as Desktop Hosting Service) in which a third party provider outsources and delivers products or virtual desktops to end-users over the internet. There are two kinds of desktops available in DaaS: persistent and non-persistent.

Days to Break-Even

Measures the average number of days that it takes a business or product to recover a customer acquisition costs.

Days from PQL (Product Qualified Lead) to Customer

Measures the average number of days that it takes a PQL to become a customer.

Days from Signup to Customer

Measures the average number of days that it takes a prospect to become a customer.

Days from Signup to PQL

Measures the average number of days it takes a prospect to become a product qualified lead.

Deferred Revenue (Unearned Revenue)

Advanced payments collected from customers for products or services over an agreement term.

Design Critique

An analysis and feedback session used to gather feedback from designers and product managers on the effectiveness of a design.

Design Library

A collection of guidelines and standards that describe a design system.

Design Process

An approach for breaking down a large project into manageable chunks.

Design Review

A weekly team meeting used to evaluate a design against its requirements in order to verify outcomes, identify issues, and reprioritize.

Design Studio

An ideation workshop, involving cross-functional teams, used to brainstorm solutions and gather ideas in the form of sketches.

Design System

A collection of design standards and usage rules, including reusable design components, that help teams design and develop a product.

Digital Transformation

The change associated with integrating digital technologies or products into a business, reshaping the business around customer experience, business value, and constant change.

Dunning

Contact made with customers in response to late payments, requesting payment for debts.

E

Empathy

Empathy is an ability to relate to and understand what other people are thinking and feeling, and helps product teams understand the goals, problems, abilities, limitations, and reasoning of users.

Engagement Loop

Activities that users repeatedly engage with, over-and-over again when using a product. Engagement loops include: motivation, action, and feedback.

Epic

A large body of work, consisting of a collection of stories that make up a larger development focus, product release, or feature set of an application or project.

Extreme Programming (XP)

An agile development method that aims to improve a product teams’ ability to respond to changing customer requirements and provide higher quality software, by implementing iterative and frequent small releases throughout a product development process.

F

Free Trial

An acquisition strategy that provides prospective customers with partial or complete product access, free-of-charge, for a limited time.

Freemium

An acquisition strategy that provides prospective customers with free-of-charge access to a limited version of a product or limited product features for an unlimited time.

G

Go-To-Market Strategy (GTM)

An action plan that establishes how a company will reach, acquire, and retain target customers, and achieve a competitive advantage in the market.

H

Hybrid Cloud

A computing environment that combines a company’s third-party public clouds and on-premise private clouds to create a flexible infrastructure that allows data and applications to be shared between them.

I

Inbound Marketing

Marketing actions used to attract customers and prospects to a product via methods such as: content marketing, search engine optimization, social media marketing, and branding.

Information Architecture

The structural design of a website, application, or product – including the structuring, organizing, and labeling of content in an effective and sustainable way that help users find information and complete tasks.

Initial Value Unit

Engagements used to advance customers through the core use case.

In-Product Call To Action (CTA)

A marketing content or tool that encourages prospective customers to complete a specific task within the product, driving leads and sales conversions.

Integration

The connection between different system, software, and platform that allows users to connect their existing data with multiple systems.

Iteration

The repetition of a development (or design) process (applied to the results of a previous product version) in order to build a solution that better meets the needs of the business and users through constant validation.

J

K

L

Landing Page

A website page that is designed to convert visitors into leads.

Latency

The delay between a user’s action and a web application’s response to that action.

Lead

An individual or organization that shows interest in a company’s service or product through sharing their contact information.

Lead Generation

The process of attracting and converting prospective customers into a lead or client.

Lead Velocity Rate (LVR)

A metric used to quantify a business’ growth in terms of qualified leads. This is done by calculating the current month’s leads against the previous month’s leads.

Lean

A practice of building products that deliver optimal value to customers while minimizing wasted resources, by systematically identifying and validating product risks and assumptions with actual users.

Legacy Product

A product that is outdated, no longer sold, or has lost substantial market share.

Lifetime Value

AA prediction of the net profit that a business can expect to receive from a customer throughout their relationship or until a service is canceled.

Loyalty Loop

A continuous process that models consumer behavior in order to retain customers, increase brand loyalty, and deliver significant value to current and prospective customers.

M

Marketing Automation

The use of software or technology to automate repetitive marketing tasks, such as emailing customers and leads.

Migration Cost

The initial cost of implementing a Software as a Service (SaaS), depending on the size of the project.

Minimum Sellable Product (MSP)

A product with enough features to be sold and no more.

Minimum Viable Product (MVP)

The cheapest, fastest, and simplest version of a usable product that can be used to validate or invalidate assumptions regarding customer behavior.

Moment of Joy

The moment when a prospect experiences the value in a product.

Moment of Truth (MOT)

The moment when a user interacts with a product or service for the first time and formulates an opinion about it.

Monthly Recurring Revenue (MRR)

The recurring, predictable revenue that a business expects to generate each month through subscribing customers.

MRR Expansion Rate (a.k.a. Net Revenue Retention Rate)

The rate at which a monthly recurring revenue grows (from month-to-month) from upsells and cross-sells to existing customers.

MRR Churn Rate (a.k.a. Gross Revenue Churn)

The percentage of monthly recurring revenue that is lost due to cancellations or downgrades.

N

Net MRR Churn (a.k.a. Net Revenue Churn)

The percent of change in monthly recurring revenue based on both churn and expansion MRR rates for a specific month.

New Bookings

Customer bookings that are attributed to new contracts, subscriptions, upgrades, or renewals which impact a company’s revenue.

Non-Product Engagements

Any interactions that prospective customers have outside of a company’s product.

Nurturing

The process of nurturing a relationship with prospective customers at every stage of the sales funnel, by acknowledging their needs.

O

Omnichannel Approach

A consumer-focused approach to marketing that aims to create contextual engagements with customers that look and feel the same across multiple channels and devices.

On-Boarding

A series of steps and resources that help customers learn to interact with a new product or service and stay engaged, making the incorporation of a product into a customer’s routine as easy as possible.

P

Pattern Library

A collection of reusable user interface design elements.

Persona

A semi-fictional representation of a company’s ideal customer, based on market research, user research, and real data regarding customer demographics and psychographics.

Personalized Customer Experience

A process of designing and delivering valuable messages and experiences which meet customer needs and create meaningful customer engagements.

Pivot

To change a business model, product, or target market based on feedback that reveals a company’s current plan isn’t working.

Persevere

To continue following a business or product plan based on feedback that a company’s current plan is working.

Platform

A group of technologies used as a base for the development of other applications or processes, that creates and connects networks of users and resources (like customers and businesses).

Platform as a Service (PaaS)

A cloud computing model that provides customers (developers) a complete platform to develop, run, and manage applications or install programs without the cost, complexity, and inflexibility of building and maintaining that platform on-premises.

Private Cloud

A cloud-based, computing service that is offered to select users or a specific client via the internet or a private internal network making it more secure than a normal cloud.

Product-Qualified Lead (PQL)

A prospect who has experienced meaningful value using a product’s free trial or freemium model, and demonstrated buying intent based on product interest, usage, and behavioral data.

PQL-To-Customer Rate

The percentage of PQLs who convert to customers (calculated by dividing the number of customers by the number of PQLs), showing how effectively a company or product converts PQLs to customers.

Product Champion

A senior individual at a company who has the highest level of engagement and understanding of a product, allowing them to take charge of furthering the internal development and external promotion of the product.

Product Engagements

The degree to which users or customers interact with your product.

Product-Led Go-To-Market Strategy

An action plan that describes repeatable and scalable processes regarding how a company acquires, retains, and grows customers, based on in-product customer behavior, feedback, product usage, and analytics.

Product Lifecycle

The period of time in which a product is introduced to customers within the market until the time it is removed or experiences a decline in sales. There are four stages of a product life cycle: introduction, growth, maturity, and decline.

Product/Market Fit

The degree to which a product satisfies a strong market demand.

Prospect (user) Onboarding

A system that actively guides new users through a product’s initial sign up and activities, in order to help users become familiar with the product and quickly find value in the product.

Product Risk

The probability of risk arising from a product’s inability to perform as expected or provide business or customer value as intended.

Q

R

Rapid Prototyping

A design workflow that involves multiple short cycles of ideation, prototyping, and testing of a small-scale, preliminary product model to quickly and efficiently optimize its design and functionality.

Retrospectives (Retro)

A meeting that allows design teams to reflect on their work process and discuss what went well and what needs to be improved.

Runway

The number of months a provider can operate at the current burn rate.

S

SaaS

A cloud-based software delivery method in which a service provider hosts applications or software on a subscription basis, and makes them available to customers through the internet.

Sales Funnel

The buying process, or customer journey, that a company leads prospects through purchasing a product or signing up for a subscription.

Service Blueprint

A diagram that visualizes a user’s interactions and path through an experience, including physical, in person, and screen touch points which are spread out over several days, weeks, or even months.

Service Level Agreement

A contract that defines the working relationship between a service provider and other parties, including the services to be provided and their expected service levels.

Signup-to-Customer Rate

The percentage of prospects which sign up for trial or freemium versions of a product, before converting to paying customers.

Signup-to-PQL Rate

The percentage of prospects that complete profile and in-product engagement requirements and become Product Qualified Leads (PQL) – calculated by dividing the number of PQLs by the number of signups.

Standup

A short, daily meeting in which attendees stand (creating discomfort in order to ensure that the meeting is short) and discuss what was accomplished the previous day, share any info that is valuable to the entire team, ask for help, and determine pairs for the day.

Stakeholder

An individual who understands and represents a company’s business needs, has valuable knowledge about customers, and stands to gain or lose from the success or failure of a product.

Style Guide

A document that guides the various code standards, visual design elements, and patterns of a site, application, or product.

T

Total Contract Value (TCV)

A measure of how much value a contract is worth once executed, including recurring revenue from the contract, usage charges, and one-time charges.

U

Unified Customer Profile Data

Data collected across all customer touch points, including social, mobile, and web) to create a 360° view of the customer.

User-Centered Design (UCD)

An iterative design process in which designers focus on the needs of a product’s users throughout each phase of the design process to optimize the product’s user experience.

V

Value Gap

The difference or inconsistency between what a customer expects from a product and the value provided them.

Value-Based Pricing

A pricing strategy in which prices are primarily based on customers’ perceived value of a product or service.

Value Proposition

The value that a company promises to deliver customers when they sign up for a subscription or buy a product.

Velocity Metrics

The amount of time it takes a company to achieve certain milestones, including the average number of days that it takes a prospect to go from signup to a Product Qualified Lead.

Virtual Private Network (VPN)

Provides online privacy and anonymity by extending a private connection across a public network, changing the IP of the entire connection as well as encrypting the connection.

Visitor-to-Signup Rate

The percent of people that sign up for a product or service after visiting a sign-up page, showing how effectively a company convinces visitors to sign up for free trials or a freemiums.

W

X

Y

Z

Zero Data (Empty State)

Screens that a prospect sees during their initial signup process, which are not yet full of information, but will eventually have content on them once users populate them.

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