Software Acronyms Explained in Plain English

If you invest in software stocks, you MUST understand the lingo.

But, software acronyms are incredibly confusing!

Here are 16 software acronyms explained in Plain English: pic.twitter.com/ouqhfvR9FK

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

ARR - Annualized Recurring Revenue

An estimate of the predictable revenue generated per year from active customers on either:

1) A subscription plan
2) A multi-year contract.

This is a good measure of how much “guaranteed” revenue a company will generate each year.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

ACV - Annualized Contract Value

The amount of contracted revenue the company expects from a customer in a year.

Ex: You sign a 3-year contract worth $12 million.

Your ACV = $4 million ($12 million / 3 years)

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

ARPU - Average Revenue Per User

How much revenue you earn from each of your customers, on average.

ARPU = Total Revenue / Number of Customers

Also called ARPA - Average Revenue Per Account

This number is useful for making pricing & marketing decisions.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

CAC - Customer Acquisition Cost

The average amount of spending that it takes to acquire a new customer.

CAC = (Total Marketing + Sales Expense) / # of New Customers

CAC helps companies assess the effectiveness and efficiency of their customer acquisition strategies.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

DAU - Daily Active Users

The number of unique individuals who actively use a product or service each day.

This is a key metric for advertising-funded platforms like $META & $SNAP

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

DBNER - Dollar-Based Net Revenue Expansion

This measures how much a cohort of customers increases their spending year-over-year, excluding churn.

It shows how effective the company is at upselling its customers.

It's also called DBNR or just NRE.

Ex: pic.twitter.com/gCXCF6KwLO

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

DBGRR - Dollar-Based Gross Retention Rate

The percentage of ARR (or revenue) that is NOT lost to churn.

This does NOT include upgrades, so the best it could be is 100%.

It's also called DBGR or just GRR.

Ex: pic.twitter.com/zjaHmNUc4M

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

DBNRR - Dollar-Based Net Retention Rate

This measures how much a cohort of customers increases their spending year-over-year, INCLUDING churn.

This is the *most important* metric of the three since it includes everything.

It's also called DBNR or NRR.

Ex: pic.twitter.com/oqPUAI5sZw

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

DR - Deferred Revenue

Cash collected upfront from a customer before the service has been performed.

Deferred revenue is recorded as a liability on the balance sheet until the service is delivered.

Ex: Collect $100 for a 1-year subscription in Q1. pic.twitter.com/oVFMpo4yE6

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

GMV - Gross Merchandise Value

The total order value of all merchandise sold across a given time period.

GMV = Total # of Transactions X Average Transaction Value

A critical metric for eCommerce companies ($SHOP) and marketplaces ($ETSY)

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

LTV - Lifetime Value

Average profit a customer brings to the company during its entire lifespan.

LTV = (Average Revenue Per User X Gross Margin ) / Churn Rate

A critical number for marketing decisions.

Also called CLV - Customer Lifetime Value

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

MAU - Monthly Active Users

The number of unique individuals who actively use a product or service on a monthly basis.

This is a key metric for advertising-funded platforms who don't have less frequent users, such as $PINS

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

MRR - Monthly Recurring Revenue

An estimate of the predictable revenue generated per month from active customers on either:

1) A subscription plan
2) A multi-year contract

MRR provides a more real-time view of the effectiveness of a company's marketing & upselling strategies.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

RPO - Remaining Performance Obligations

The total value of all future contracted revenue that has not yet been recognized.

Kind of like a backlog.

Current RPO = expected to become revenue in the next 12 months.

Non-Current RPO = expected to recognized in 12+ months.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

RR - Renewal Rate

The proportion of customers who opt to renew and extend their contracts at the end of a subscription period.

RR = Number of Customers Who Renew / Total Customers Up For Renewal

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

TCV - Total Contract Value

The total value of a contract between a company and its customer.

It indicates the total amount of money the company expects to receive over the contract's entire duration.

— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023

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— Brian Feroldi (🧠,📈) (@BrianFeroldi) June 18, 2023