10 Abbreviations that First time Startup Owners Should Know
VC, or venture capital, is a form of financing provided by venture capital firms to startups that are believed to have a long-term growth potential. Venture capital is a popular financing option for newer companies to raise capital since they lack the access and flexibility of other traditional financing options. In exchange for providing substantial funding, venture capitalists will take a large stake in the company they are investing in.
B2B, or business to business, refers to companies that sell products or services to other businesses. Examples of B2B businesses include manufacturers, business lenders, web development companies and so on.
B2C, or business to consumer, refers to businesses that sell directly to customers. B2C businesses include traditional and online retailers as well as restaurants.
CAC, or customer acquisition cost, is the total amount spent on acquiring one customer. This number is calculated by dividing the money spent on sales and marketing and dividing it by the total number of customers you received through those expenses.
For example, if your company spent $200 on marketing in a year and acquired 200 customers in the same year, your CAC is $1.
CPC, or cost per click, is the amount of money you pay advertisers for each click you receive on your ad. This metric is calculated by the amount you spent on your ad divided by the number of clicks your ad received.
LTV, or lifetime value (sometimes referred to as Customer Lifetime Value), is the projected revenue that a customer will generate for your business during his lifetime. It is an important metric because it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth for your business.
MRR, or monthly recurring revenue, is income that you can expect your business to earn each month. Investors and lenders will look at your MRR to determine how steady your business growth is, and investors will likely require a set increase in MRR before investing in your business.
To illustrate how MRR works: you work for a cloud computing company that sells a cloud photo storage platform. Customers sign a contract for a yearly subscription and they pay a monthly fee to use the photo storage service.
Jim, your client, has agreed to pay $1,500 per year, and based on his purchase you can expect to earn $125 ($1,500/12 months) in income each month. The monthly recurring revenue (MRR) for this customer is $125.
Once you've calculated the MRR for each customer, you can calculate the total MRR for your business.
ARR, or annual recurring revenue, is similar to MRR but measures your business’ recurring revenue on a yearly basis.
R&D, or research and development, includes activities that companies undertake to make new and innovative products or services. The objective is to add to the bottom line and stand out from their competitors by introducing new products or services.
SaaS, or software as a service, is a software delivery model that allows customers to access the software from any device with an internet connection. The software is licensed on a subscription basis. In this cloud-based model, software vendors host and maintain the servers, databases, and the code that makes up an application.
SaaS services include accounting software, website creation software, human resource management, content management, and many others. The main advantages of SaaS are the accessibility of the software and that you do not need to pay upfront for the software.
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