Subscription billing glossary
Plain definitions of the terms that come up when you bill on repeat: what each one means, how to work it out, a worked example with real numbers, and the mistakes to avoid.
Revenue metrics
MRR (monthly recurring revenue)
MRR, monthly recurring revenue, is the revenue a subscription business can expect every month from its active subscriptions.
Read the definitionARR (annual recurring revenue)
ARR, annual recurring revenue, is the value of a business's recurring subscriptions over one year, usually calculated as MRR multiplied by twelve.
Read the definitionARPU (average revenue per user)
ARPU, average revenue per user, is the average recurring revenue each paying customer brings in, usually calculated as MRR divided by the number of paying customers.
Read the definitionChurn rate
Churn rate is the share of customers, or of recurring revenue, that a subscription business loses over a period, usually a month.
Read the definitionNRR (net revenue retention)
Net revenue retention (NRR) is the percentage of recurring revenue a business keeps from its existing customers over a period, after upgrades, downgrades and cancellations, not counting new customers.
Read the definitionLTV (customer lifetime value)
Customer lifetime value (LTV or CLV) is an estimate of the total gross profit a business earns from one customer over the whole time they stay subscribed.
Read the definitionGRR (gross revenue retention)
Gross revenue retention (GRR) is the percentage of recurring revenue a business keeps from its existing customers over a period after downgrades and cancellations, without counting any upgrades or new customers.
Read the definitionExpansion revenue (expansion MRR)
Expansion revenue, or expansion MRR, is the additional monthly recurring revenue that existing customers add in a period by upgrading, buying more seats, adding add-ons or using more.
Read the definitionNet new MRR
Net new MRR is the total change in monthly recurring revenue over a period: MRR from new customers plus expansion, minus contraction from downgrades and MRR lost to cancellations.
Read the definitionDeferred revenue
Deferred revenue, also called unearned revenue, is money a business has collected for products or services it has not yet delivered, recorded as a liability until it is earned.
Read the definitionRevenue recognition
Revenue recognition is the accounting rule that decides when revenue counts as earned, which for a subscription means spreading it over the period the service is delivered rather than booking it when the invoice is paid.
Read the definitionBilling and pricing
Recurring billing
Recurring billing is charging a customer automatically on a repeating schedule, such as every month or every year, for as long as their subscription stays active.
Read the definitionProration
Proration is adjusting a charge to cover only the part of a billing period a customer actually uses, most often when they change plans, add seats or start partway through a period.
Read the definitionUsage-based billing
Usage-based billing charges customers for how much of a product they actually use in a period, such as API calls, messages or storage, instead of, or on top of, a fixed subscription fee.
Read the definitionMetered billing
Metered billing is recording each customer's usage as events during a billing period and rolling those events up into one billable quantity at the end of the period.
Read the definitionTiered pricing
Tiered pricing, also called graduated pricing, charges each unit at the rate of the tier it falls in, so the first units cost one price and later units cost another.
Read the definitionVolume pricing
Volume pricing charges every unit at a single rate chosen by the total quantity the customer buys or uses, so a bigger order lowers the price of all its units.
Read the definitionPrepaid credits
Prepaid credits are a balance a customer buys in advance and spends down as they use a product, instead of being billed for that usage afterwards.
Read the definitionFree trial
A free trial is a set period, often 7, 14 or 30 days, during which a customer uses a subscription product without paying before billing starts.
Read the definitionPer-seat pricing
Per-seat pricing, also called per-user pricing, charges a subscription a fixed price for each person, or seat, that is allowed to use the product.
Read the definitionFlat-rate pricing
Flat-rate pricing is charging every customer the same fixed price each billing period for the whole product, whatever their size or how much they use it.
Read the definitionFreemium
Freemium is a pricing model in which a basic version of a product is free for as long as the customer wants it, and more features, capacity or support cost money.
Read the definitionBilling cycle
A billing cycle is the repeating period of time a subscription is charged for, such as a month, a quarter or a year, starting on a fixed anchor date.
Read the definitionCalendar billing
Calendar billing is charging every subscription on the same day of the month, usually the 1st, instead of on the day each customer signed up.
Read the definitionOverage charges
Overage charges are fees for usage above the allowance included in a customer's plan, billed per unit or per block of units beyond that allowance.
Read the definitionGrandfathering
Grandfathering is keeping existing subscribers on the price they signed up at when the price for new customers goes up.
Read the definitionAnnual billing
Annual billing is charging a subscription once a year, up front, for the next twelve months, usually at a lower price than paying monthly.
Read the definitionPayments and collection
Dunning
Dunning is the process of recovering failed subscription payments by retrying the charge on a schedule and reminding the customer to update their payment details.
Read the definitionInvoluntary churn
Involuntary churn is losing a subscriber because their payment failed and was never recovered, rather than because they chose to cancel.
Read the definitionNet 30 (net terms)
Net 30 is a payment term on an invoice meaning the full amount is due 30 days after the invoice date.
Read the definitionCredit note
A credit note is a document a seller issues to reduce what a customer owes, or to record credit in the customer's favor, without cash changing hands.
Read the definitionMerchant of record (MoR)
A merchant of record (MoR) is the legal entity that sells a product to the end customer, so it takes the payment, collects and pays sales tax or VAT, and handles refunds and chargebacks.
Read the definitionChargeback
A chargeback is the reversal of a card payment by the cardholder's bank after the cardholder disputes the charge, with the money taken back from the merchant.
Read the definitionPayment gateway
A payment gateway is the service that takes a customer's payment details from a checkout, sends the charge through the payment networks for approval, and passes the result back to the seller.
Read the definitionSoft and hard declines
A soft decline is a temporary refusal of a card payment that may succeed if retried later, while a hard decline is a final refusal that will keep failing until the customer provides a different payment method.
Read the definitionAccount updater (card updater)
An account updater is a card network service that gives merchants new card details, such as a new expiry date or number, when a customer's saved card is renewed or replaced by their bank.
Read the definitionDirect debit
Direct debit is a way of collecting payments in which the customer authorizes a business, through a mandate, to take money directly from their bank account whenever a payment is due.
Read the definitionSCA (strong customer authentication)
Strong customer authentication (SCA) is a European requirement that customers confirm certain online payments with two independent proofs of identity, usually through their bank's 3D Secure check.
Read the definitionAccounts receivable (AR)
Accounts receivable (AR) is the money a business's customers owe it for products or services already invoiced but not yet paid.
Read the definitionCustomers
Customer portal
A customer portal is a self-service page where subscribers manage their own billing: they view invoices, update payment details, and change, pause or cancel their subscription without contacting support.
Read the definitionSubscription pause
A subscription pause temporarily stops billing, and usually access, for a subscriber who plans to come back, without canceling the subscription.
Read the definitionCancellation flow
A cancellation flow is the short sequence of steps a subscriber goes through to cancel, usually a question about why they are leaving, an offer to stay such as a pause or a discount, and a confirmation.
Read the definitionTrial conversion rate
Trial conversion rate is the share of free trials that end in a paying subscription, measured over the trials that ended in a given period.
Read the definitionWin-back campaign
A win-back campaign is a planned series of messages, often with an offer, sent to customers who canceled a subscription to persuade them to subscribe again.
Read the definition