Glossary
AI Finance Glossary
Plain-English definitions of AI, accounting, and SaaS-finance terms.
Categories
A
Activation Rate
Percentage of new users who complete a key action that predicts long-term retention.
Annual Contract Value
Average annualized revenue from a customer contract, excluding one-time fees.
Annual Recurring Revenue
The annualized value of all active recurring subscription contracts, the primary revenue metric for SaaS businesses.
B
Break-Even Analysis
Calculation of the sales volume at which total revenue equals total costs, generating zero profit.
Burn Rate
The rate at which a company spends its cash reserves each month, critical for tracking how long funding will last.
C
Capital Asset Pricing Model
Model describing relationship between systematic risk and expected return for assets in equilibrium.
Capital Expenditure
Funds spent acquiring, upgrading, or maintaining long-term physical assets for business operations.
Churn Rate
The percentage of customers or revenue lost within a given period due to cancellations or non-renewals.
Cohort Analysis
Tracking a group of customers acquired in the same period to measure retention and revenue trends over time.
Comparable Company Analysis
Valuing a company using trading multiples from publicly listed peer companies.
Contraction MRR
Monthly recurring revenue lost from existing customers through downgrades or seat reductions.
Contraction Revenue
Recurring revenue lost from existing customers who downgrade their plan or reduce usage without fully canceling.
Contribution Margin
Revenue minus variable costs, showing how much each unit or sale contributes toward fixed costs and profit.
Customer Acquisition Cost
The total cost of acquiring a new paying customer, including all sales and marketing expenses divided by new customers acquired.
Customer Lifetime Value
The total net revenue a business expects to earn from a customer over the entire duration of their relationship.
D
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash generation used in valuation and financial analysis.
Earnout
Contingent payment mechanism tying part of the acquisition price to the target's future financial performance.
Engagement Score
Composite metric quantifying how actively a customer uses a product, predicting retention and expansion.
F
Few-Shot Learning
AI technique providing a small number of task examples in the prompt to guide model performance.
Financial Modeling
Building quantitative representations of a company's finances to support decision-making and valuation.
Fine-Tuning
Further training a pre-trained AI model on domain-specific data to improve performance on specialized tasks.
Free Cash Flow
Cash generated from operations minus capital expenditures, available for debt, dividends, or reinvestment.
G
Generative AI
AI systems capable of creating new content—text, images, code, or data—based on patterns learned from training.
Gross Revenue Retention
The percentage of recurring revenue retained from existing customers excluding any expansion, capped at 100%.
L
LBO Model
Financial model analyzing private equity returns from a leveraged buyout at various exit scenarios.
Large Language Model
AI system trained on vast text data to understand and generate human language across many tasks.
Logo Retention
Percentage of customer accounts (logos) that renew over a given period.
M
Magic Number
A SaaS sales efficiency metric measuring how much new ARR is generated for every dollar spent on sales and marketing.
Merger Model
Financial model assessing the accretion or dilution to acquirer EPS resulting from an acquisition.
Monte Carlo Simulation
Computational technique using random sampling to model probability distributions of financial outcomes.
Monthly Active Users
The number of unique users who engage with a product at least once within a 30-day period, measuring product reach and engagement.
N
O
Operating Expenditure
Day-to-day expenses required to run a business, expensed immediately on the income statement.
Operating Margin
The percentage of revenue remaining after all operating expenses including COGS and overhead, excluding interest and taxes.
P
Payback Period
Time required to recover the customer acquisition cost from a customer's gross profit contribution.
Performance Bonus
Annual or periodic cash award tied to achieving individual or company performance targets.
Predictive Analytics in Finance
The use of statistical models and machine learning to forecast future financial outcomes including revenue, cash flow, churn, and credit risk.
Product Qualified Lead
A prospective customer who has demonstrated buying intent through meaningful engagement with a product — such as using a key feature or hitting a usage threshold.
Prompt Engineering
Craft of designing and optimizing inputs to AI language models to reliably produce desired outputs.
R
Rolling Forecast
Continuously updated financial forecast extending a fixed period ahead, replacing point-in-time annual budgets.
Rule of 40
A SaaS benchmark stating that a company's revenue growth rate plus profit margin should sum to 40% or more.
Runway
The number of months a company can operate at its current burn rate before exhausting its cash reserves.
S
SaaS Quick Ratio
A metric measuring SaaS revenue growth quality by comparing new and expansion MRR gained to churned and contracted MRR lost.
Sales Qualified Lead
A prospect that has been reviewed and confirmed by the sales team as meeting target criteria, ready for direct sales engagement.
Scenario Planning
Developing multiple coherent narratives about future business conditions to prepare strategic responses.
Sensitivity Analysis
Testing how a financial model's outputs change when individual input assumptions are varied.
T
V
Variance Analysis
Systematic comparison of actual financial results to budgeted or prior period figures to identify and explain differences.
Virality Coefficient
Average number of new users each existing user generates through referrals or organic sharing.
W
Z
Zero-Based Budgeting
Budgeting approach requiring all expenses to be justified from zero each period rather than incremented from prior year.
Zero-Shot Learning
AI capability to perform tasks on categories or domains not seen during training, using semantic knowledge.