Digital Business Glossary
Essential terms every entrepreneur should know before buying or selling a digital business.
Revenue Metrics
MRR (Monthly Recurring Revenue)
The predictable revenue a business earns every month from active subscriptions.
ARR (Annual Recurring Revenue)
The annualized value of recurring subscription revenue, calculated as MRR x 12.
ARPU (Average Revenue Per User)
The average monthly revenue generated per active user or customer.
Growth Metrics
Churn Rate
The percentage of customers or revenue lost over a given period.
LTV (Lifetime Value)
The total revenue a business expects to earn from a single customer over their lifetime.
CAC (Customer Acquisition Cost)
The average cost to acquire one new paying customer.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers, including expansion revenue.
Valuation
SaaS Valuation
The process of determining the fair market value of a software-as-a-service business.
Revenue Multiple
A multiplier applied to revenue to estimate business value (e.g., 3x annual revenue).
SDE (Seller's Discretionary Earnings)
Net profit plus owner salary and one-time expenses -- the true cash flow to the owner.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization -- a measure of operating profitability.
Transactions
Escrow
A secure third-party holding of funds until both buyer and seller fulfill their obligations.
Due Diligence
The investigation a buyer performs to verify a business's claims before purchasing.
Asset Transfer
The process of transferring all business assets (code, accounts, domain) from seller to buyer.