30 essential terms every subscription business should know
The annualized value of recurring subscription revenue, calculated as MRR multiplied by 12. ARR is commonly used by enterprise SaaS companies and investors to evaluate business scale and growth.
The average monthly or annual revenue generated per active subscriber, calculated by dividing total recurring revenue by the number of active customers. ARPU helps track pricing effectiveness and customer value trends.
The percentage of customers or revenue lost over a given period. Customer churn rate measures the percentage of subscribers who cancel, while revenue churn rate measures the percentage of MRR lost. Both are critical health indicators for subscription businesses.
The total revenue a business can expect to earn from a single customer over the entire duration of their subscription. LTV helps determine how much to invest in acquiring and retaining customers.
The total cost of acquiring a new customer, including marketing spend, sales team costs, and related overhead, divided by the number of new customers acquired in that period.
A service provided by card networks (Visa Account Updater, Mastercard Automatic Billing Updater) that automatically updates stored card details when a customer receives a new card number or expiration date, preventing payment failures due to outdated information.
The infrastructure and rules system that connects card-issuing banks with merchants to facilitate electronic payments. The major card networks are Visa, Mastercard, American Express, and Discover.
The ability of a business to keep its existing customers over time. Customer retention rate measures the percentage of customers who remain active at the end of a period, and is the inverse of customer churn rate.
The user experience and process a customer goes through when they attempt to cancel their subscription. A well-designed cancellation flow includes reason collection, alternative offers, and a confirmation step to reduce voluntary churn.
The process of communicating with customers to collect overdue payments. In subscription billing, dunning typically involves a sequence of automated emails, in-app messages, or SMS notifications sent after a payment fails.
A standardized response code returned by a card issuer or payment processor when a payment is declined. Decline codes indicate the specific reason for the failure, such as insufficient funds, expired card, or suspected fraud.
A formal document issued to a customer detailing the amount owed for a subscription period, including line items, taxes, discounts, and payment terms. In subscription billing, invoices are typically generated automatically at each billing cycle.
Customer loss that occurs not because the customer chose to cancel, but because a recurring payment failed and was not recovered. Involuntary churn is caused by expired cards, insufficient funds, bank declines, and other payment issues.
The practice of calculating a partial charge or credit when a customer changes their subscription plan mid-billing cycle. Proration ensures customers only pay for what they actually use.
The financial instrument a customer uses to pay for their subscription, such as a credit card, debit card, bank account (ACH/SEPA), or digital wallet (Apple Pay, Google Pay). Payment methods are tokenized and stored securely for recurring charges.
The act of re-attempting a failed recurring payment charge. Payment retries can be scheduled automatically by the billing system or triggered manually, and their success depends heavily on timing and the reason for the original failure.
A company that handles the technical execution of electronic payment transactions between merchants and customers. Payment processors like Stripe, Braintree, and Adyen transmit transaction data between the merchant, card network, and issuing bank.
The technology that securely transmits payment information from the customer (web or mobile) to the payment processor. The gateway encrypts sensitive card data and acts as the bridge between the checkout experience and the processing network.
Adherence to the Payment Card Industry Data Security Standard (PCI DSS), a set of security requirements for any organization that stores, processes, or transmits cardholder data. PCI compliance is required for all businesses that accept card payments.
A recurring payment model where customers are charged automatically at regular intervals (monthly, quarterly, or annually) in exchange for continued access to a product or service.
An intelligent approach to retrying failed payments that uses data analysis — including decline codes, time of day, day of week, and customer behavior — to determine the optimal time and frequency for retry attempts, rather than using fixed intervals.
