Founder glossary

The predictable revenue you collect every month from subscriptions. The heartbeat metric for any subscription business.

MRR = paying customers × average monthly price

Why it matters: It's the number you watch weekly — small changes compound fast.

Your recurring revenue expressed as a yearly run-rate. Usually just MRR × 12.

ARR = MRR × 12

Why it matters: Investors talk in ARR; it's the headline size of a subscription business.

How much revenue you keep from existing customers over a year — after upgrades, downgrades, and churn. Above 100% means you grow even with zero new customers.

NRR = (starting revenue + expansion − contraction − churn) ÷ starting revenue

Why it matters: The single best signal that customers love the product. >100% is great.

Like NRR but without counting upgrades — it can never exceed 100%. Pure measure of how much revenue you lose to churn and downgrades.

GRR = (starting revenue − contraction − churn) ÷ starting revenue

Why it matters: Strips out expansion to show how leaky your bucket really is.

The average revenue each customer (or account) brings in over a period.

ARPU = total revenue ÷ number of customers

Why it matters: Rising ARPU means you're selling more value per customer.

What it costs, all-in, to win one new customer — ads, sales salaries, tools, the works.

CAC = sales & marketing spend ÷ new customers won

Why it matters: If CAC is higher than what a customer is worth, growth loses money.

The total gross profit you expect from a customer across their whole relationship with you.

LTV = ARPU × gross margin × average customer lifespan

Why it matters: The classic health check is LTV:CAC ≥ 3. Below 1 and the model is upside down.

How many months of a customer's payments it takes to earn back what you spent acquiring them.

CAC payback = CAC ÷ (monthly revenue × gross margin)

Why it matters: Shorter payback = less cash tied up = you can grow faster on the same budget.

The share of revenue left after the direct cost of delivering your product (cost of goods sold).

Gross margin = (revenue − COGS) ÷ revenue

Why it matters: High margins (software) fund growth; thin margins (physical) demand volume and discipline.

What each sale contributes to fixed costs and profit after all the variable costs of that sale.

Contribution margin = price − variable cost per unit

Why it matters: Tells you whether selling one more unit actually helps — or quietly hurts.

The percentage of customers (or revenue) you lose in a period. The silent killer of recurring businesses.

Churn = customers lost ÷ customers at start of period

Why it matters: Low churn lets growth compound; high churn means you're refilling a leaky bucket.

How fast a metric (revenue, users) increases period over period, usually monthly.

Growth = (this period − last period) ÷ last period

Why it matters: Compounding is everything — 10%/month is ~3x a year; 5% is ~1.8x.

The moment a new user first experiences real value (their 'aha'). Not just signing up — actually getting the point.

Why it matters: Weak activation poisons everything downstream: retention, referrals, revenue.

The share of users who keep coming back over time. Often shown as a curve that should flatten (not hit zero).

Why it matters: A flattening retention curve is the clearest sign of product-market fit.

A loyalty score from a single question: 'How likely are you to recommend us?' (0–10). Promoters (9–10) minus detractors (0–6).

NPS = % promoters − % detractors

Why it matters: A quick pulse on whether customers would vouch for you — the engine of word-of-mouth.

The percentage of people who take the action you want — visitor → signup, trial → paid, etc.

Conversion = completed actions ÷ total opportunities

Why it matters: Small conversion gains ripple through the whole funnel and your CAC.

Daily and Monthly Active Users. Their ratio is a stickiness measure — how many monthly users show up on a given day.

Stickiness = DAU ÷ MAU

Why it matters: High stickiness means the product earned a place in the daily routine.

How much cash you spend (net of revenue) each month. 'Gross burn' is total spend; 'net burn' subtracts revenue.

Net burn = monthly costs − monthly revenue

Why it matters: Burn sets the clock on how long you have to make the business work.

How many months until you run out of cash at your current burn.

Runway = cash in bank ÷ monthly net burn

Why it matters: Under ~6 months of runway, fundraising or cutting costs becomes urgent.

Will you reach profitability before the money runs out on current trajectory? 'Alive' if yes, 'dead' if not.

Why it matters: Paul Graham's gut-check — know which one you are, early and honestly.

What your company is worth in a round. Pre-money is before the new investment; post-money adds it in.

Post-money = pre-money + amount raised

Why it matters: Post-money sets the investor's ownership %: their check ÷ post-money.

The reduction in your ownership percentage when new shares are issued (a raise, an option pool).

Why it matters: You can own a smaller slice of a much bigger pie — but know the trade you're making.

Simple Agreement for Future Equity — a fast way to raise early money that converts to shares at your next priced round.

Why it matters: The default early-stage instrument (Y Combinator's); quick, but the caps stack up.

The spreadsheet of who owns what — founders, investors, employees (the option pool).

Why it matters: Messy cap tables scare investors and cause founder regret. Keep it clean from day one.

Earning your equity over time (commonly 4 years with a 1-year 'cliff') instead of all at once.

Why it matters: Protects the company — and you — if a co-founder leaves early.

Shares set aside to grant employees. Usually created (and dilutes founders) before a priced round.

Why it matters: Investors often require it pre-money, so founders bear the dilution — negotiate the size.

Total Addressable Market (everyone who could ever buy), Serviceable Available Market (who you can realistically reach), and Serviceable Obtainable Market (what you can win near-term).

TAM ⊃ SAM ⊃ SOM

Why it matters: Honest, bottom-up market sizing beats a giant top-down number every time.