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Important Terminologies For Ease of Doing Bussisses

The document outlines key terminologies essential for understanding business operations, including Customer Acquisition Cost (CAC), Payback Period, and Lifetime Revenue (LTV). It provides formulas for calculating various metrics such as Churn Rate, Net Revenue Retention (NRR), and Gross Margin, which are crucial for assessing financial health and growth potential. Additionally, it defines terms like Burn Rate, Runway, and user engagement metrics like DAU and MAU.

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8 views2 pages

Important Terminologies For Ease of Doing Bussisses

The document outlines key terminologies essential for understanding business operations, including Customer Acquisition Cost (CAC), Payback Period, and Lifetime Revenue (LTV). It provides formulas for calculating various metrics such as Churn Rate, Net Revenue Retention (NRR), and Gross Margin, which are crucial for assessing financial health and growth potential. Additionally, it defines terms like Burn Rate, Runway, and user engagement metrics like DAU and MAU.

Uploaded by

s45097188
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Important Terminologies for Ease of Doing Bussisses

1) Customer Acquisition Cost(CAC)- spend on average to acquire one new customer.


Formula- CAC = Total Sales & Marketing Costs ÷ Number of New Customers

2) Payback Period (CAC Payback)- How long it takes to recover your CAC from each
customer’s gross profit.
Formula- CAC ÷ (ARPU × Gross Margin)

3) lifetime Revenue(LTV)- lifetime profit from a customer.


LTV = ARPU × Gross Margin ÷ Churn Rate

4) Churn Rate- Percentage of customers you lose in a period.


Lower Churn Rate means better

Formula- Churn Rate (%) = Customers Lost ÷ Customers at Start × 100

5) Net Revenue Retention (NRR)

Measures recurring revenue changes from existing customers, including upsells and churn.

Formula: NRR = (Starting MRR + Expansion – Contraction – Churned) ÷ Starting MRR × 100%

6) ARPU — Average Revenue per User

Revenue you earn per active user/customer.

ARPU = Total Revenue ÷ Active Users (or Accounts)

7) Gross Margin
What percent of revenue remains after direct costs (COGS).

Formula: Gross Margin = (Revenue – COGS) ÷ Revenue × 100 percent

Higher margins give you more room to invest in growth

8) EBITDA(Earnings before Intrest, Taxes, depreciation and amortization)

reflects core business profitability.

Formula: EBITDA = Revenue – Operating Expenses (excluding interest, tax, depreciation,


amortization)

9) Runway- How many months your startup can operate before running out of cash.
Formula- Runway = Cash Balance ÷ Monthly Burn Rate

10) Burn rate- The pace at which a new company is running through its startup capital ahead
of it generating any positive cash flow. For example, a company may have a burn rate of
$20,000, meaning they spend 20,000 per month.
11) Growth = (Current – Previous) ÷ Previous × 100%

12) DAU: Daily active users.


13) MAU: Monthly active users.
14) Stickiness Ratio- How often users return within a
Formula- Stickiness = DAU ÷ MAU

15) Operating Margin (EBIT Margin)- Profit as a percentage of revenue after all operating
costs.
Formula- Operating Margin = Operating Income ÷ Revenue

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