The Micro SaaS Glossary: MRR, ARR, Churn, SDE, and Every Other Term Explained

Buying, selling, or valuing a SaaS comes with its own vocabulary, and a lot of it gets thrown around without explanation. This is a plain-English reference for the terms that actually come up — grouped by what they're used for, not alphabetically, so related terms sit next to each other.

Revenue & growth

• MRR (Monthly Recurring Revenue) — predictable subscription revenue for one month. Annual plans get normalized to a monthly figure (price ÷ 12) before being added in.
• ARR (Annual Recurring Revenue) — MRR × 12. The same recurring revenue expressed as a yearly number.
• ARPU (Average Revenue Per User) — MRR divided by number of paying customers. Useful for comparing pricing efficiency across products.
• MoM growth (Month-over-Month growth) — the percentage change in MRR from one month to the next.
• One-time revenue — money that isn't part of a recurring subscription (a lifetime deal, a one-off service fee). Usually excluded from MRR/ARR since it's not predictable going forward.

Profit & cost

• Gross margin — revenue minus the direct cost of delivering the product (hosting, payment processing fees, third-party API costs), shown as a percentage of revenue.
• SDE (Seller's Discretionary Earnings) — net profit plus add-backs for the owner's salary, personal expenses run through the business, interest, depreciation, and one-time costs. The standard profit measure for valuing small, owner-run businesses.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) — a profit measure common for larger companies with management teams; unlike SDE, it doesn't add back the owner's own compensation, which is why it's less commonly used for solo-founder micro SaaS.
• Burn rate — how much cash a business spends per month beyond what it earns. Mostly relevant for pre-revenue or funded startups, less so for a profitable micro SaaS.
• Runway — how many months a business can keep operating at its current burn rate before running out of cash.

Retention & churn

• Churn rate (customer/logo churn) — the percentage of customers who cancel in a given period, relative to how many you started with.
• Annualized churn — a properly compounded yearly churn figure: 1 − (1 − monthly churn)^12. More accurate than simply multiplying monthly churn by 12, which overstates the real annual number.
• Revenue churn (gross) — the percentage of MRR lost to cancellations and downgrades in a period, regardless of customer count.
• Net revenue churn — revenue churn after subtracting any expansion revenue (upgrades, add-ons) from existing customers. Can be negative — negative net churn means existing customers grew revenue even after accounting for losses, a strong positive signal.
• LTV (Customer Lifetime Value) — the total revenue a business expects from one customer over their entire time as a customer.
• CAC (Customer Acquisition Cost) — the average cost of acquiring one new paying customer, including marketing and sales spend.
• LTV:CAC ratio — LTV divided by CAC. A commonly cited healthy benchmark is 3:1 or higher, though it varies significantly by business model.

Deal & valuation terms

• Multiple — a shorthand valuation method: asking price divided by a financial metric (usually annual revenue or SDE). "3x ARR" means the price is three times annual recurring revenue.
• Asking price — what the seller is listing the business for, not necessarily what it sells for after negotiation.
• Due diligence — the buyer's process of verifying a seller's claims (revenue, traffic, code, ownership) before completing a purchase.
• Escrow — a neutral third party holding funds until agreed conditions (like a completed handoff) are met, reducing risk for both sides. Not automatically included in most micro SaaS deals — it has to be arranged separately if you want it.
• Earn-out — a deal structure where part of the purchase price is paid later, contingent on the business hitting agreed performance targets after the sale. Uncommon in very small deals, more typical in larger acquisitions.
• Asset sale vs. stock sale — an asset sale transfers specific assets (code, domain, customer list); a stock sale transfers ownership of the company entity itself. Nearly all micro SaaS sales are asset sales.

Product & technical terms

• Tech stack — the specific languages, frameworks, and services a product is built with (e.g. Next.js, Supabase, Vercel).
• Uptime — the percentage of time a service is available and working, usually tracked as a monthly or annual average.
• API — a way for other software to interact with a product programmatically, without using its regular interface.
• Self-hosted — software the user runs on their own infrastructure, rather than a hosted service the company runs for them.
• White-label — a product designed to be rebranded and resold under someone else's name.

Most of these terms show up together in a single listing or a single conversation with a buyer or seller — knowing them cold makes it much easier to ask the right questions and spot a number that doesn't add up.

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