SaaS Terms: A Quick Guide

In today’s fast-changing cloud development landscape, understanding the SaaS terms becomes essential for professional and personal needs. Cloud-based solutions have become more popular among startups of different kinds, and they require an adequate understanding and familiarity with the concepts, which can greatly enhance the development process.

In our article, we would like to present a comprehensive glossary that gathers the main SaaS definitions. Therefore, whether you are a rookie in cloud development, a strong intermediary who wants to refresh your memory or a mindful customer, this resource will help you stay up-to-date and make data-based decisions in the evolving SaaS sphere.

Primary SaaS Glossary: Main Terms and Definitions

In this section, we gathered the most crucial terms for any cloud development process. When it comes to SaaS terminology, which may be confusing occasionally, we did our best to explain even the most complex terms without losing the sense, yet making it understandable for everyone.

• Access control list (ACL): This represents a list of security permissions that specify the accesses a particular object can receive from the user or system. It also explains the number of actions that can be performed on a specific object.

• Annual contract value (ACV): ACV provides a number that a separately taken user’s contract can bring in revenue. Usually, to calculate the ACV correctly, the company should divide the total contract value by the number of years written in the service agreement. It helps to better understand the customer’s lifetime value and make insightful conclusions based on the data.

• Average revenue per account (ARPA): The term refers to the average revenue produced by separately taken account during an annual or monthly period. It helps the company to identify the revenue that individually taken clients bring to the company and align the marketing campaign respectfully.

• Average revenue per user (ARPU): Similar to the previous definition, this term refers to the revenue received from an individually taken user or subscriber.

• Average selling price (ASP): The average rate you sell the product on a particular channel or market.

• Bounce rate: A specific number representing the number of visitors who left the service after checking only one page. In SaaS development, this index helps in further analysis to fix the drawbacks and increase user engagement.

• Customer acquisition cost (CAC): The CAC represents the overall number of expenses spent during the potential customer’s acquisition process.

• Compound monthly growth rate (CMGR): CMGR tracks the scalability during the chosen period at which the company is evolving and expanding.

• Cohorts: This definition refers to the user group selected according to their specific behavior or characteristics. Cohorts are frequently used in A/B tests for feature validations or overall performance improvement.

• Concentration risk: It serves as a vulnerability for the development company. This vulnerability arises when the developers rely heavily on the insignificant cohort of the users in the question to provide a significant revenue portion.

• Customer retention rate (CRR): CRR represents the company’s number of active customers over the chosen period. This metric is one of the most important indexes that help to track the success of the chosen SaaS project.

• Customer satisfaction score (CSAT): A specific measure that helps track the satisfaction level of the current users. Regularly, it is implemented in the form of surveys or rating scales.

• Cost per click (CPC): An average rate the advertiser spends on each action performed with their ad. It dramatically helps advertisers analyze the marketing campaign and the spending budget.

• Customer experience (CX): CX refers to the overall perception of the SaaS product during its active use phase. It includes stages from the initial awareness to the maintenance of the product and post-purchase support. It frequently encompasses every touchpoint of the customer’s journey to receive valuable feedback for product improvements.

• Customization: This ability you add to your SaaS project allows your target audience to change the product according to their specific needs and requirements. Customization is an integral part of any successful customer experience. A well-developed product helps to align the customer’s expectations with the present application’s functionality.

• Customer behavior index (CBI): It’s another metric that helps the SaaS company better understand the client’s behavioral patterns and optimize their decisions accordingly. Usually, CBI includes insights like purchase frequency, average value of the transactions, and overall interaction with marketing efforts. It may help the team to identify potential trends and receive valuable insights regarding the customer’s behavior with their products.

• Customer lifecycle: The number of steps and actions taken from the user’s side while purchasing, using, and maintaining your product. It represents a full cycle of user actions when using your app.

• Customer onboarding: It’s a special process created specifically for newcomers. It helps new clients understand the internal processes and get used to your app, which can end up with much higher engagement rates.

• Deferred value: This definition refers to the possible revenue or other financial benefits that a company may hypothetically receive after some time. Regularly, this is associated with the contracts that ensure payment of the sum within the scheduled time.

• Downgrade: The process that concerns the available subscription plans. Specifically, it represents the change of the available billing plan to the lower-tier to meet the budgetary limitations of the particular customer.

• Elasticity: This concept plays a great role in the future success of any SaaS project. It’s worth mentioning that the needs and preferences regarding cloud-based applications may vary significantly regularly, which causes the necessity for excellent elasticity, especially in terms of the development process. It helps provide users with convenient adjustments without unpaying for unused capacities.

• Engagement loop: A specifically created funnel that creates exceptional circumstances so users can provide valuable feedback and continue fruitful cooperation with the particular service.

• Freemium model: A software version in which the basic application is available to users for free, while the additional features are only paid for. This model helps the company attract a broader range of clients without requiring them to make financial commitments.

• Growth hacking: It’s a special approach that has gained popularity in modern marketing campaigns. Unlike traditional marketing strategies, growth hacking doesn’t rely only on established approaches. Instead, this model focuses on the constant experiments regarding the new methods of audience attractions. It involves usage of unconventional techniques to increase the outcome of the campaign.

• Go-to-market strategy (GMT): GMT represents a complete and comprehensive strategy regarding every aspect of the future market entrance. It focuses on analysis of the market specifics, identifying the audience segments, determining sales and marketing tactics, etc. It also includes settlement of the KPIs for further success measurement and resource allocation optimization.

• Hybrid cloud: The particular computing environment that gathers together various cloud-based models, such as on-premise clouds, third-party public clouds, or custom solutions. It helps the development maintain the necessary amount of security without losing efficiency.

• Infrastructure as a service (IaaS): IaaS is a special computing cloud model frequently added to the SaaS service. The main difference of this cloud model is that it can allow you to rent resources without purchasing and managing physical services.

• Integration: A standard process in software development when two separate applications or processes are aligned together with the help of API to solve specific tasks.
• Licensing: A term that refers to the legal side of the software development process. It permits third-party representatives to use specific application parts, like developed technologies, features, or trademarks.
• Lead generation: The process of turning interested customers, also known as “leads”, into buyers and potential constant clients. Lead generation is a complex process that requires a certain amount of knowledge in marketing and modern social media algorithms.

• Monthly churn rate (MCR): This represents the lowest acceptable percentage of customers who have decided to stop their membership with a particular cloud service. The MCR rate is essential for the analytics team to track the retention rates and overall user engagement with the service.

• Migration: This process refers to situations when specific data arrays or separate parts of the project have to be moved from one environmental structure to another. Cloud development can be displayed during the structure migration from the on-premises servers to the SaaS app.

• Monthly recurring revenue (MRR): The special metric helps businesses track the recurring and predictable amounts of profit that the company might earn from the subscription-based system for their services.

• Multi-tenant architecture: It’s a special architectural development that allows the usage of a single infrastructure for several participants (tenants). The security question is considered one of the most important since you have to ensure secure data isolation to provide convenient simultaneous use of the program.

• Net promoter score (NPS): Another SaaS sphere metric to gauge customer loyalty and satisfaction. Regularly performed in the form of surveys asking the customers about the possibility of recommending your product to others.

• Platform as a service (PaaS): A cloud platform with features to develop, run, and maintain software products. It can provide many valuable tools, including middleware, development frameworks, and databases. Generally, it offers everything needed to create and launch cloud applications successfully.

• Public cloud software: A specific variety of cloud computing services developed by third-party services. Typically, those programs are available to everyone for purchase and further use.

• Private cloud software: It’s a cloud computing service that is only available for use within one company or organization. Unlike the public cloud, the private cloud can not be used outside the parent organization, which provides greater control and opportunities for deeper customization.

• Product roadmaps are part of product documentation and include the vision, goals, and development plan. It can be described as a guiding framework that helps to align the stakeholder’s and customers’ expectations with the present developmental phase.

• Quota: A specific limit set inside the SaaS application that helps regulate the time spent on a particular resource. Usually, quotas inside the SaaS projects are set for the number of users, transactions, or storage space taken.

• Recurring revenue: An essential metric that concerns the organization’s financial health. Typically, the recurring revenue inside the SaaS platform is counted based on the profit the service subscribers bring. Usually, this metric is calculated on an annual or monthly basis.

• Retention rate: Another key standard for current clients who continue to use the product over the highlighted period. It helps team analysts understand customer loyalty and evaluate current engagement rates.

• Role-based access control (RBAC): A regulatory approach frequently used in startups and established organizations with many employees. The RBAC approach allows the management team to include certain permission roles that restrict or provide access to certain data based on the position.

• Scalability: In the sphere of SaaS development, scalability represents the ability of the system to grow exponentially and to handle that growth without losses of efficiency. Regularly, the scalability is optimized via the increase of the resources or optimization of those that are currently available.

• Single Sign-On (SSO): Another security measure that allows a member of the organization to access any particular service from multiple devices with a single authentication action. Meanwhile, it increases the company’s security and enhances the convenience levels of account management.
• Service Level Agreement (SLA): Another piece of documentation that provides a clear understanding of the metrics used to evaluate the service. Usually, SLA includes targeted response time, uptimes, and a list of responsibilities for violating those metrics.

• Subscription model: This definition serves as the business model in which the customers pay a specific recurring charge to access the SaaS product. Those payments are debited regularly at the agreed-upon intervals.

• Total Contract Value (TCV): TCV is the total revenue the business is expected to receive from the customer’s contract over its entire duration. In the TCV, we include all recurring fees, one-time purchases, or additional services that can be added to the price tag of the customer who has taken the particular offer.

• Time to Value (TTV): TTV represents the amount of time that it takes for a particularly taken customer to understand the possible value of the developed product. A smaller index of the TTV indicates better user engagement and ROI indexes.

• Upsells: It’s a specific marketing strategy that is frequently used in product companies as well as in cloud software approaches. When adding upsell, the merchant expects to encourage the customer to purchase a more expensive upgrade or add-on feature not available in the basic version of the application.

• Usage metrics: This definition refers to the special quantitative measurements used to analyze and evaluate the target audience’s engagement with your product over a certain period. Frequently, these metrics can include engagement with the features, average usage time, or activity levels of cohorts.

• Vertical SaaS: This SaaS type refers to the cloud development process that aligns with a particular sphere or field of activity. The main distinction from the horizontal type is that vertical SaaS software can not serve a broad range of industries due to specific features and possibilities of this cloud program.

• Year-over-year growth (YOY): Another financial metric frequently used to measure the company’s progress over the annual period. This helps the C-level representatives identify the drawbacks or assess the success of the chosen strategy.

Conclusion

Understanding the key terms and definitions of development is only one brick that will help you to succeed. Whether you are a client looking for a team of SaaS developers, an enthusiast who enjoys coding and looking forward to new cloud projects, or a senior who wants to refresh the memory, understanding the key definitions and terms plays a decisive role in the SaaS development process.

Therefore, we urge you not to stop your desire for knowledge since such a fast-paced sphere like SaaS doesn’t like lateness. And if you require additional help with your SaaS development journey, contact us, and let’s create optimized software solutions together.