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Glossaries
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Subscription Management
Recurring Billing
Accounting and Taxes
Compliance & Security
SaaS Metrics
Pricing
Subscription Management
What is Volume Discounting?
Volume discount (also known as a quantity discount) occurs when the price of the items bought is lowered when increased quantities are purchased. In other words, it means that people who make bulk purchases instead of buying single items will receive a larger discount.
What is Subscription Management?
Subscription management refers to customer lifecycle operations like managing trials, assigning credits, issuing refunds and making mid-cycle subscription changes. While recurring billing is automated, subscription management involves billing actions that cannot always be scheduled.
What is a Recurring Revenue Model?
A recurring revenue model is how a business makes money by trading access to products or services for regularly scheduled, oftentimes monthly payments.
What is Grandfathering?
Retaining your old pricing plan for existing customers, while new plans are applied to all new customers.
What is Freemium?
Freemium model is an acquisition strategy used to attract users to a product/service by providing basic features for free, and advanced features for a premium.
What is Free Trial?
An acquisition model where a product/service is offered to customers for a limited period of time, for free, so that they can learn about the product and discover value before actually paying for it.
What is Checkout?
The point in a customer’s journey where the account information and payment details are collected, the transaction is processed, and the product/service is purchased.
What are Discounts and Coupons?
Offering a discount is defined as slashing the price of a product to give customers something they can’t refuse. Running promotional discounts/coupons is a viable customer acquisition strategy for SaaS businesses looking to get more leads and profits.
What is Cart Abandonment?
When the customer leaves a checkout page unattended for 30 minutes, or when they close the webpage and not return to it within 30 minutes, it is counted as an Abandoned Cart.
Recurring Billing
What are Recurring Payments?
Recurring payments, also known as subscription payments, are charged automatically to a customer's credit card or bank account at periodic intervals.
What is Usage-based Billing?
Also called metered billing or pay-as-you-go pricing, this allows customers to only pay for what they've used in each billing cycle.
What is Recurring Billing?
The process of ensuring subscriptions to your product or service are billed accurately and on time for each customer, accounting for global taxes, proration, payment failures, etc.
What is Proration?
Adjusting a customer's bill amount to reflect any plan changes made in the middle of a billing cycle.
What are Payment Methods?
The number of ways in which merchants can collect payments from their customers, for example, credit cards, digital wallets, direct debit, offline payment, etc.
What is Friendly Fraud?
Friendly Fraud or Chargeback Fraud occurs when a consumer purchases a product/service online using a credit card and later claims a chargeback for the same instead of raising a refund from the merchant.
What is Dunning?
Dunning is the process of handling failed and declined credit card payments to recover lost revenue.
What are Credit Notes?
A document that's used to return an invoice amount as credits made to a customer account or as cash. Also called credit memos.
What is Consolidated Invoicing?
The operation of generating a single invoice against multiple purchases made by a specific customer over a specific period of time.
What is Calendar Billing?
Calendar billing equips a business to change the billing date of its user’s subscription cycle. It helps businesses provide flexibility to its users to obtain unique billing dates which will better align with the user’s financial cycles.
What is Account Hierarchy?
Account hierarchy is a way of structuring a complex organisation into a simple parent-child relationship, generally used to break down locations, departments, or any other function of the company.
Accounting and Taxes
What is a SaaS Income Statement?
A SaaS income statement, also known as a Profit and Loss (P&L) statement, is an essential financial document. It meticulously details your company's revenue and expenditures over a specific period, whether monthly, quarterly, or annually, offering a clear picture of financial performance.
What is Revenue Backlog?
Revenue backlog is the value of contracted revenue or bookings that have not yet been recognized.
What is an Accounts Receivable aging report?
An AR aging report contains a list of your customers' unpaid invoices since the time the sales invoice was issued along with their duration. In other words, the accounts receivable report lists the amount due from your customers.
What is Deferred Revenue?
Deferred revenue is commonly known as unearned revenue. When a company receives advance payment from a customer before the product/service has been delivered, it is considered deferred revenue. Unlike accounts receivable, which is considered an asset, deferred revenue is listed as a current liability on the balance sheet.
What is Accrued Revenue?
Accrued revenue is revenue that is recognized but is not yet realized. In other words, it is the revenue earned/recognized by a business for which the invoice is yet to be billed to the customer. It is also known as unbilled revenue.
What is a Purchase Order?
Purchase Order (PO) is an official order form submitted by a customer to a business, committing to pay for the product/service that it is to be delivered in the future.
What is Value Added Tax?
Value Added Tax (or VAT) is a consumption tax that’s added on top of a product, whenever the value is added on each stage of the production, until the point of sale.
What is Sales Tax?
Sales tax is a consumption tax imposed on the buyer during the point of sale of a product/service, collected by the seller, and paid to the government.
What is Order to Cash?
Order to Cash also known as O2C or OTC is the business process that covers the entirety of the order processing system right from receiving the order to up until the point the payment is made and an entry is logged in your accounting books.
What is Revenue Recognition Principle?
Under the Generally Accepted Accounting Principle (GAAP), revenue recognition is the condition under which revenue is recognized and provides a way to account for it in the financial statements. It is as simple as it sounds but taking the literal value of it might not be the best way to account for revenue in SaaS businesses.
Compliance & Security
What is Credit Card Data Portability?
The ability to port customer credit card information from one payment gateway to another.
What is PCI DSS Compliance?
'PCI' stands for Payment Card Industry and 'DSS' stands Data Security Standard which is a set of security requirements for companies involved in the payment process of accepting, transferring or even storing card information.
What is GDPR?
The General Data Protection Regulation (GDPR) which came into effect in May 2018 gave European citizens the power to control their personal information that businesses store and handle, without tradeoffs.
What is PSD2?
The Second Payment Services Directive is a European regulation that will require online card payments to go through Strong Customer Authentication (SCA) from September 14th, 2019.
SaaS Metrics
Acquisition
What is CAC Payback Period?
CAC payback period is the time it takes for your company to recover the cost of acquiring a customer.
What is LTV-CAC Ratio?
The LTV CAC ratio is an essential metric used to assess the long-term value of customers compared to the cost of acquiring them. A ratio above 3 indicates healthy profitability, while below 1 suggests potential issues with customer retention or acquisition costs.
What is Customer Acquisition Costs?
Customer acquisition cost (CAC) is the money spent on converting a prospect into a customer or obtaining a new customer entirely.
Finance
What is SaaS Gross Margin?
SaaS Gross Margin refers to the amount of revenue a software as a service (SaaS) company generates after subtracting the direct expenses associated with creating and providing its services. It is is expressed as a percentage of the total revenue.
What are Bookings in the world of SaaS?
Understanding Bookings is essential for understanding the health and the sales process of any business. Predominantly, Bookings and Revenues are misunderstood and oft times used interchangeably - even though they imply two different things.
What is Current ratio?
Current ratio, also called the working capital ratio, is a liquidity ratio used to measure a business’ ability to meet its short-term liabilities. It compares the firm’s current assets to its current liabilities.
What is SaaS Quick Ratio?
The SaaS Quick Ratio measures the growth efficiency of SaaS companies.
What are operating expenses?
Operating expenses are those expenses that are incurred by a business through its regular business operations. These expenses are incurred from day-to-day business activities.
Retention
What is Customer Attrition?
Customer attrition, also called customer churn, is the rate at which your business loses customers over a given period. Some amount of customer attrition is inevitable, but a significant attrition rate can impact your business’s bottom line since it’s a direct loss of revenue.
What is Net Dollar Retention?
Net Dollar Retention (NDR) - aka Net Revenue Retention (NRR) - rate measures the changes in recurring revenue caused due to fluctuations within the revenue from the existing customer base.
What is Renewal Rate?
Renewal rate measures the percentage of customers who renew their contracts at the end of their subscription period.
What is Customer Retention?
Customer Retention is the ability of an organization to retain its existing customers. A high retention rate shows how valuable your product or service is to your customers.
What is SaaS Churn Rate?
In SaaS, churn is the rate at which customers cancel their subscriptions. It’s usually measured as a percentage.
What is Subscription Churn?
Subscription churn is the number of subscribers/customers that stop paying for your product/service in a given period of time. Churn can be seen from different angles, and businesses can have their own way of calculating it based on what is relevant for their organization.
What is Churn Rate?
Churn rate is the rate at which your customers are canceling their subscriptions.
What is Net MRR Churn Rate?
Net MRR Churn Rate is the net percentage of total MRR lost from existing subscriptions/customers during a period.
What is Gross MRR Churn Rate?
Gross MRR Churn rate is the percentage reduction in monthly recurring revenue from existing subscriptions because of factors such as subscriptions being moved from paid plans to lower or free plans, cancellations, add-ons, and other services removed from subscriptions.
What is Involuntary Churn?
Involuntary churn occurs when a customer’s payment attempt fails, leading to subscription cancellation.
What is Revenue Churn?
Revenue churn is a measure of the recurring revenue lost by a SaaS business through subscription cancellations and downgrades.
What is Negative Churn?
Negative churn is a specific state of the net churn of a subscription business when its able to add more in expansion revenue than its losing as churned mrr.
What is Customer Churn?
Customer churn represents the opportunity for a company to enhance its customer experience and retention strategies. By understanding the rate at which customers leave, businesses can proactively address their needs, fostering stronger relationships and long-term loyalty.
Revenue
What is Total Contract Value?
Total Contract Value (TCV) is the total amount of revenue you receive from a given customer.
What is Revenue Run Rate?
Revenue run rate is one of the simplest metrics you can use to forecast your company’s future cash flow.
What are ACV and ARR?
ACV or Annual Contract Value is a revenue metric that describes the amount of revenue you receive from a given customer each year. ARR or Annual Recurring Revenue is also a revenue metric that describes the amount of revenue you can expect to receive from your existing clients in a given year.
What is Annual Recurring Revenue?
Annual Recurring Revenue (ARR) is a key metric for subscription-based businesses, representing the predictable income from subscriptions annually. It indicates business stability and growth potential, making it crucial for investors and stakeholders to assess long-term financial health.
What is SaaS Sales Forecasting?
The sales forecasting process essentially means estimating and predicting the future revenue of your SaaS product.
What is Upgrade MRR?
Upgrade MRR is the monthly recurring revenue generated when subscriptions are moved from existing plans to higher plans.
What is Reactivation MRR?
Reactivation MRR is the monthly revenue earned from previously churned or canceled subscriptions that are reactivated during the month.
What is New MRR?
New MRR is the additional monthly recurring revenue earned from new subscriptions acquired during a given month.
What is Net MRR Growth Rate?
Net MRR Growth rate is the net increase or decrease in monthly recurring revenue from one month to the next.
What is Monthly Recurring Revenue?
Monthly Recurring Revenue, or MRR, is the lifeblood of subscription businesses. It's a measure of your predictable revenue stream, calculated on a monthly basis, from all active subscriptions. Unlike one-time sales, MRR offers a clear lens through which you can view your financial stability and plan confidently.
What is Expansion MRR?
Expansion Monthly Recurring Revenue (Expansion MRR) is the additional monthly recurring revenue generated in the current month compared to the previous month, excluding the MRR contributed by new customers/new MRR.
What is Downgrade MRR?
Downgrade MRR is the reduction in monthly recurring revenue caused by existing subscribers paying less than they did the previous month.
What is Contraction MRR?
Contraction monthly recurring revenue (MRR) is a performance metric that refers to the total reduction in MRR due to downgrades and subscription cancellations (or churn) compared to the previous month.
What is Average Revenue Per User?
The Average Revenue Per User (ARPU) is a key metric used to measure the financial performance of a business. It is calculated by dividing total revenue by the number of users. Monitoring ARPU can help you assess your pricing strategies and profitability.
Pricing
What is Pay As You Go Pricing Model?
The pay-as-you-go (PAYG) pricing model means that users pay based on how much they consume. For example, a cloud storage service provider could charge based on the amount of storage used, while many phone carriers bill based on minutes used.
What is Value Based Pricing?
Value-based pricing , also known as value-added pricing or value pricing, is a method of setting prices based on your customers and how they perceive the value of your product.
What is Tiered Pricing Model?
Tiered pricing as a model (also known as price tiering) is used to sell your products within a particular price range. Once you fill up a tier you move to the next tier and you will be billed according to the number of purchases you make in those respective tiers. Tiered pricing differs as a model and strategy. Often both these terms are confused with one another.
What is Competitive Pricing Strategy?
Competitor-based pricing serves as a common method for testing product pricing, especially for newcomers in the market. Conducting thorough research on competitors' offerings and pricing is crucial to developing your own pricing strategy.