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 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 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 favour, 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 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 definition