The Subscription and Pricing Glossary: Every Term in Plain English

Sit in on a SaaS board meeting in 2026 and you might hear a sentence like this:

"NRR is 112%, CAC payback is down to 14 months, and we're moving the AI features to credits with a per-resolution tier and a true-up at renewal."

If half of that sounded like another language, you're not alone. Subscription businesses have always had their own vocabulary. In the book I spent pages on MRR, churn and net dollar retention. Then AI arrived and added a whole new dictionary: tokens, credits, outcomes, overage, routing.

So here it is, all in one place. More than 230 terms, each defined in plain English in one to three sentences, with a formula where there is one and a link to the deeper guide when you want the full story.

Let me show you how to use it.

How to use this glossary

Terms are listed A to Z. Each entry is a short definition first, then a link to the guide, calculator or case study that goes deeper. Fifteen of the most searched terms also have their own one-page explainers, linked in bold.

If you're new to subscriptions, learn these ten first. They come up in almost every conversation about pricing or growth.

Prices and benchmarks quoted below are as at 27 October 2026.

A

A/B price test

Showing different prices to comparable groups of new customers and measuring which earns more. It's the most reliable way to test willingness to pay, but only works once you have steady traffic.

Activation rate

The share of new sign-ups who reach their first real win (the "aha" moment) within a set time. In a free funnel it's often the biggest lever on revenue. See product-led growth.

Active-user pricing

Charging only for users who were active in a billing period. Slack's fair billing policy, for example, bills only users active in a 28-day window.

ACV (annual contract value)

The average annual value of a customer contract, excluding one-off fees. ACV = total contract value of recurring fees ÷ contract length in years.

Add-backs

Expenses added back to profit when valuing a business for sale, such as an owner's personal costs or one-off events, to show its true earning power. See selling a subscription business in Australia.

Add-on

An optional extra a customer can buy on top of a plan, such as more storage, an AI feature or a premium support pack. A main source of expansion revenue.

Advertising model

One of the book's five pricing models: customers use the product free and advertisers pay for their attention. It only works at large scale. See the five pricing models.

Agent (AI agent)

AI software that completes a multi-step task on its own, such as resolving a support ticket or researching a lead, by planning, calling tools and checking results. Priced per seat, conversation, action, minute or outcome. See AI agent pricing.

Agentic workflow

A process where one or more AI agents carry out a chain of steps with little human input. Each step resends context to the model, so costs per task are far higher than for a single chat reply.

"Aha" moment

The point where a new customer first feels the value of your product. Getting people there fast is one of the book's churn best practices. See how to reduce churn.

AI credit

A unit of prepaid usage that an AI product converts into actions, such as a prompt, an image or an agent step. Each company sets its own exchange rate, so credit values range from tens of cents to a fraction of a cent.

AI gross margin

Revenue minus the direct cost of serving customers (model inference, hosting, data APIs, payment fees, support), divided by revenue. AI products typically run at 25% to 60%, against 75% to 80% for traditional SaaS. See AI gross margins.

AI wrapper

A product built mainly on top of someone else's AI model, adding an interface, workflow or data. Its margin depends on the model vendor's prices, so it needs a cost lever and a moat. See pricing an AI wrapper.

Allowance

The amount of usage included in a plan before overage or top-ups apply, such as 3,000 credits or 100 resolutions a month.

Annual plan (annual prepay)

A subscription billed once a year upfront, usually at a discount to twelve monthly payments. It improves cash flow and retention, but creates a yearly renewal event. See annual vs monthly plans.

Annual discount

The saving offered for paying yearly instead of monthly, commonly expressed as "two months free." Set it so it still beats the churn you'd see on monthly plans, using the Annual Discount Calculator.

Annual renewal rate

The share of annual contracts that renew at the end of their term. One of the land-and-expand metrics listed in Chapter Seven of the book.

Anchoring (price anchoring)

Showing a higher reference price first, such as a premium tier or the "was" price, so the price you want customers to choose looks reasonable. See the perfect pricing page.

API pricing

Charging developers for access to your software or data through an API, usually per call, per token or per unit of data. See LLM API pricing comparison.

ARPA (average revenue per account)

Recurring revenue divided by the number of paying accounts. Used instead of ARPU when one account has many users.

ARPU (average revenue per user)

Recurring revenue divided by paying customers over the same period. Always say whether it's monthly or annual and whether free users are included. See ARPU.

Monthly ARPU = MRR ÷ Paying customers

ARR (annual recurring revenue)

The yearly value of your recurring subscription revenue, based on customers and contracts active today. It excludes one-off fees, services and unpredictable usage. See ARR.

ARR = MRR × 12

AASB 15

The Australian accounting standard for revenue from contracts with customers. It decides when subscription, credit and outcome revenue can be recognized. See revenue recognition for subscriptions.

Attrition

Another word for churn, more common in gyms, banking and HR.

Australian Consumer Law (ACL)

The national consumer protection law in Australia, covering misleading conduct, unfair contract terms and consumer guarantees. New subscription rules are being added from 1 July 2027. See Australian Consumer Law and subscriptions.

Automatic renewal

A subscription term that renews and charges the customer unless they cancel. Legal in Australia if clearly disclosed and fair. See automatic renewals in Australia.

B

Base fee

The fixed part of a hybrid price, such as a platform fee or seat price, charged regardless of usage. It usually includes an allowance.

Batch processing

Sending AI model jobs that can wait (usually up to 24 hours) at a discount. OpenAI, Anthropic and Google charge about 50% less for batch work. See token-based pricing.

Benchmark

A comparison figure from similar businesses, such as median churn or NRR, used to judge your own numbers. See subscription benchmarks 2026.

Bill shock

A customer's surprise at a much larger bill than expected, usually from usage-based charges. Spend caps, alerts and estimates before costly actions prevent it.

Billing cycle

The period between charges: weekly, monthly, quarterly or yearly. It doesn't have to match the contract term.

Bookings, billings and revenue

Bookings are the value of contracts signed. Billings are what you've invoiced. Revenue is what you've earned under accounting rules. A $12,000 annual deal is a $12,000 booking and billing on day one, but $1,000 of revenue a month.

Breakage

Prepaid value, such as credits or gift cards, that customers never use. It has its own revenue recognition rules, so get advice before you count it. See credit-based pricing.

Bundled services model

Model #5 of the book's eight subscription models: several related services packaged into one recurring fee. See the bundled services model.

Bundling

Selling several products or features together at one price, usually lower than buying each separately. Bundles raise perceived value and make comparison harder.

Burn multiple

Net cash burned divided by net new ARR over the same period. Under 1x is excellent; over 3x is a warning sign. See burn multiple.

Burn multiple = Net cash burn ÷ Net new ARR

Burn rate

How much cash a business spends each month beyond what it brings in.

C

CAC (customer acquisition cost)

Total sales and marketing spend in a period divided by new customers won in that period. See customer acquisition cost.

CAC = Sales and marketing costs ÷ New customers acquired

CAC payback period

The number of months a customer's gross profit takes to repay what it cost to acquire them. See CAC payback period.

CAC payback (months) = CAC ÷ (Monthly ARPU × Gross margin %)

Cached input tokens

Input an AI model vendor has seen recently and stored, billed at a steep discount. Anthropic charges cache hits at about 5% of the normal input price.

Cancellation flow

The steps a subscriber goes through to cancel. A good one is easy to find, asks one optional question and offers one relevant alternative. See cancellation flows.

Capacity pricing

Charging for reserved compute, throughput or time rather than individual actions, such as Snowflake credits or GPU hours.

Charm pricing

Ending prices in 9 or 99 ($29, $9.99) so they feel lower. It works best for consumer and impulse purchases, less so for premium B2B offers.

Chicken-or-egg problem

The launch problem every network faces: you can't attract buyers without sellers, or sellers without buyers. The book's advice is to build the supply side first. See network effects.

Churn

The loss of customers or recurring revenue over a period, usually measured monthly. It can be voluntary or involuntary, and measured in customers or dollars.

Churn rate

The percentage of customers or recurring revenue lost in a period. See churn rate formula.

Customer churn rate = Customers lost in the period ÷ Customers at the start × 100

Churned MRR

Monthly recurring revenue lost from customers who cancelled in the period.

Click to cancel

The nickname for the US FTC's rule requiring cancellation to be as easy as sign-up. A federal court voided it in July 2025, but easy cancellation is still enforced case by case. See the FTC click-to-cancel case study.

CMRR (committed monthly recurring revenue)

MRR plus signed contracts that haven't started yet, minus known cancellations. It shows where MRR is heading.

Cohort

A group of customers who started in the same period. Tracking each cohort's revenue over time shows whether retention is improving. The Stripe Export Analyser builds cohorts from a Stripe export.

Commit and drawdown

A contract where the customer commits to a minimum spend, often prepaid, then draws it down as they use the product. Common in AI and data platforms.

Community marketing

Growing by building a community around your product or topic. One of the four shoestring growth techniques in Chapter Eight. See growing on a shoestring.

Concurrency pricing

Charging by how many tasks, calls or agents can run at the same time, rather than by total volume.

Conjoint analysis

A survey method where customers choose between bundles of features and prices, revealing how much each feature is worth to them. See willingness to pay.

Consumables model

Model #2 of the book's eight models: a subscription for products customers use up and reorder, like my monthly peppermint tea. See the consumables model.

Consumption-based pricing

Another name for usage-based pricing: customers pay for what they consume.

Context window

The maximum amount of text (in tokens) an AI model can consider at once, including instructions, documents and conversation history. Bigger context means bigger bills per call.

Contraction MRR

Recurring revenue lost from customers who stay but pay less, through downgrades or fewer seats. See MRR.

Contribution margin

Revenue minus all variable costs (delivery, payment fees, commissions), before fixed overheads. It shows how much each extra sale contributes to covering the business.

Cost per million tokens (MTok)

The standard way AI model prices are quoted. $2 per MTok input means $2 for every million tokens sent to the model.

Cost per token

The price an AI model vendor charges for each token it reads or writes, quoted per million tokens with separate input and output rates.

Cost per task = (Input tokens × Input price + Output tokens × Output price) ÷ 1,000,000

Cost-plus pricing

Setting a price by adding a markup to your costs. It protects your floor but ignores value, and in AI it can turn you into a reseller. Compare value-based pricing.

Cost to serve

The full cost of supporting one customer: delivery, hosting, inference, support and payment fees.

Credit-based pricing

A model where customers spend a balance of credits on actions, each with a published credit cost. Most AI products bundle a monthly allowance into each plan and sell top-ups.

Credit expiry

The rule for when unused credits lapse. Harsh expiry breeds resentment; most good systems roll paid credits over for at least a month.

Cross-sell

Offering an existing customer a related product. One of the book's four tips for net negative churn. See expansion revenue.

Customer concentration

How much of your revenue depends on your largest customers. The book's rule: no client above 10% of revenue, and your top five under 25%. See the MOATS framework.

Customer health score

A single score combining usage, support and payment signals to flag customers at risk of leaving. Monster.com used one to target its small business segment, as described in Chapter Nine.

Customer lifetime

How long an average customer stays. Average lifetime in months = 1 ÷ monthly churn rate.

Customer segmentation

Grouping customers by size, need or behavior so you can price, package and support each group differently.

Customer success

The team or process responsible for making sure customers get the outcomes they bought, which drives renewal and expansion.

D

DaaS (data as a service)

Selling access to data on a subscription or usage basis, usually through an API. Part of the book's "Data and APIs" pricing model.

Data network effect

When every user's activity improves the product for everyone, because the product learns from the data. One of the six network effects in Chapter Six.

Decoy pricing

Adding an option mainly to make another look like better value, such as a top tier that makes the middle tier feel sensible. See good-better-best pricing.

Deferred revenue

Cash received for service not yet delivered, such as the unused months of an annual plan. It sits on the balance sheet as a liability until earned.

Disintermediation

When buyers and sellers meet through your marketplace, then deal directly to avoid your fee. See the HomeJoy case study.

Downgrade

A customer moving to a cheaper plan. It counts as contraction, not churn, but often comes before a cancellation.

Dunning

The process of recovering failed subscription payments through retries, reminders and card updates. See dunning email templates.

Dynamic pricing

Prices that change with demand, time or customer, like airline seats or surge pricing. Rare in subscriptions, where predictability matters.

E

E-commerce model

One of the book's five pricing models: selling products online, one order at a time. Its weakness is one-off revenue, which is why the book recommends building subscription in.

Economic moat

A durable advantage that protects a business's customers and profits from competitors. Warren Buffett popularized the term in 1995.

Effort-based pricing

Charging AI tasks by the time and compute they take rather than a fixed price per request. Replit's version showed that customers need a price estimate up front. See the Replit case study.

Embedded integration

Building your product into a partner's product so their users find you there. One of the four shoestring techniques in Chapter Eight.

Embedding

Becoming so built into a customer's processes that leaving would be painful. Part of the "S" (Switching) in the MOATS framework.

Enterprise agreement

A negotiated contract for a large customer, often a fixed annual price covering seats, usage and support, sometimes with a true-up.

Entitlements

The features, limits and allowances a customer's plan gives them access to, as recorded in your billing or product system.

Evergreen subscription

A subscription with no end date that renews until cancelled.

Exit survey

A short questionnaire shown when a customer cancels, asking why. See the exit survey template.

Expansion MRR

New recurring revenue from existing customers in the period: upgrades, add-ons, extra seats and extra usage.

Expansion revenue

All additional recurring revenue from existing customers. It's what pushes NRR above 100%. See expansion revenue.

F

Fair use policy

A limit hidden inside an "unlimited" plan that lets the business restrict extreme users. Be clear about it up front, or "unlimited" becomes a trust problem. See how Panera learned unlimited needs a limit.

Feast or famine

Revenue that swings between busy and empty periods, typical of project and one-off businesses. It's the problem recurring revenue solves. See the recurring revenue model.

Feature gating

Holding some features back for higher plans to give customers a reason to upgrade. See packaging.

First-month churn

The share of new customers who cancel within their first month. Track it separately, because it usually points to onboarding problems.

Flat-rate pricing

One price for one package, whatever the usage. Simple to sell, but it stalls as customers grow.

Freemium

A permanent free version of a product, with a paid premium version. It works best with a huge market and a low cost per free user. See freemium.

Free trial

Full access to a paid product for a limited time, after which the customer pays or loses access. See freemium vs free trial.

Free-to-paid conversion rate

The share of free users or trial sign-ups who become paying customers within a set window. See free-to-paid conversion rates.

Free-to-paid conversion = New paying customers ÷ Free sign-ups × 100

Frontier model

The most capable, and usually most expensive, AI models a vendor offers. In October 2026 the top tiers list at about $10 per million input tokens and $50 per million output.

G

Gabor-Granger

A pricing survey that asks whether people would buy at a series of prices, to find the revenue-maximizing price.

Gamification

Using game elements such as points, streaks, levels and badges to encourage usage. See how Duolingo's streaks became a subscriber machine.

Good-better-best

Three tiers at rising prices: an entry tier, a middle tier designed for most buyers, and a premium tier. See good-better-best pricing.

Graduated pricing

Usage pricing where each band of units is charged at its own rate: the first 1,000 at one price, the next 4,000 at a lower one. See tiered pricing.

Grandfathering

Keeping existing customers on their old price or plan when you change pricing for new customers. It softens a price rise. See how to raise prices.

Gross churn

Revenue lost to cancellations and downgrades before counting any expansion.

Gross margin

Revenue minus cost of goods sold, divided by revenue. Traditional SaaS runs around 75% to 80%; AI products often far lower. See gross margin.

Gross margin % = (Revenue − Cost of goods sold) ÷ Revenue × 100

GRR (gross revenue retention)

The share of recurring revenue kept from existing customers after downgrades and cancellations, ignoring all upgrades. It can't exceed 100%. See GRR and GRR vs NRR.

GST on subscriptions

Australia's 10% goods and services tax. It generally applies to subscriptions sold to Australian customers by GST-registered businesses, and overseas sellers of digital services to Australian consumers may need to charge it too. See GST on subscriptions.

H

Hard limit

A cap that stops usage completely when reached. Safer for your margins, but frustrating for customers, so most products pair it with warnings or a slow mode.

High touch

Personal, frequent contact with customers, such as calls and check-ins. The book recommends high touch for the first 90 days.

Hybrid pricing

A fixed recurring fee combined with a usage-based charge, such as a seat plus credits or a platform fee plus overage. See hybrid pricing.

I

ICP (ideal customer profile)

A description of the customer who gets the most value from you and is most valuable to you, used to focus marketing and product decisions.

Implementation fee

A one-off charge for setup, onboarding or data migration. It's not part of MRR or ARR.

Industry standard network effect

When a product becomes embedded in how a whole industry works, so it's very hard to replace. The first of the book's six network effects.

Inference cost

What it costs to run an AI model to produce an answer, measured in tokens, GPU time or vendor fees.

Input tokens

Everything sent to an AI model in a call: instructions, the user's question, documents and conversation history. See token.

Insurance model

Model #6 of the book's eight: a peace-of-mind subscription that covers future needs, like maintenance plans or warranties. See the insurance model.

Introductory price

A lower price for a customer's first period. Make the ongoing price and the date it starts clear, especially under Australia's new subscription rules.

Involuntary churn

Customers lost because a payment failed, not because they chose to leave. About a third of subscription churn. See involuntary churn.

J

Jobs to be done

A way of understanding customers by the "job" they hire a product to do, rather than their demographics. The Customer Pain-Point Analyser pulls jobs to be done from reviews and emails.

K

K-factor (viral coefficient)

How many new users each existing user brings in. K = invitations sent per user × conversion rate of invitations. Above 1, growth feeds itself.

L

LAER

Short for land, adopt, expand, renew: a variation on land and expand that adds the adoption and renewal steps.

Land and expand

Winning a customer with a small first purchase, then growing what they buy. The subject of Chapter Seven of the book.

Lifetime deal

A one-off payment for permanent access. It brings cash fast, but turns future customers into a cost with no revenue.

List price

The published price before discounts.

LLM (large language model)

The type of AI model behind chatbots, writing tools and agents, priced by the token. See LLM API pricing comparison.

Lock-in

How hard it is for a customer to leave because of data, integrations, contracts or habits. Healthy lock-in comes from value; unhealthy lock-in comes from traps.

Logo churn (logo retention)

Customer churn counted by accounts ("logos") rather than revenue. Logo retention is the share of accounts kept.

Loss aversion

People's tendency to feel losses more than equal gains. It's why reverse trials and "you'll lose your streak" messages work.

Loyalty program

A program rewarding repeat customers with points, tiers or perks. The book's Uber Rewards example showed how tiers nudge spending. See how Uber killed its rewards program, then won with Uber One.

LTV (customer lifetime value)

The gross profit you expect from a customer over their whole relationship with you. See customer lifetime value.

LTV = ARPU × Gross margin % ÷ Monthly churn rate

LTV:CAC ratio

Lifetime value divided by acquisition cost. The book's rule of thumb is that CAC should be a third or less of LTV, a ratio of 3:1 or better. See LTV:CAC ratio.

M

Magic number

A sales efficiency measure: the increase in quarterly recurring revenue, annualized, divided by the previous quarter's sales and marketing spend. A result above about 0.75 is often read as a sign that extra sales and marketing spend is paying off.

Marketplace

A platform connecting buyers and sellers and taking a fee. The third of the book's six network effects.

Member benefits model

Model #1 of the book's eight: a membership that gives discounts, perks or access. See the member benefits model.

Membership

A subscription that also offers belonging, status or community. See membership vs subscription and how to price a membership.

Metered paywall

Letting visitors view a set number of articles or uses free each month before asking them to subscribe.

Metering

Measuring each customer's usage accurately enough to bill for it. Without reliable metering, usage pricing falls apart.

Minimum commitment

Model #8 of the book's eight: the customer commits to a minimum spend or usage for a term in exchange for a better rate. See minimum commitment pricing.

Minimum viable product (MVP)

The simplest version of a product that lets you test whether customers want it. A tool for finding product/market fit, not proof of it.

MOATS framework

The book's five-factor test of how well a business is protected: Marketing supremacy, One (no single point of failure), Audience, Toughness and Switching. See the MOATS framework and score yourself with the MOATS Scorecard.

Model routing

Sending each AI task to the cheapest model that meets your quality bar. The biggest single lever on AI gross margin.

Monthly plan

A subscription billed every month. About 70% of subscription services choose monthly billing, according to the book, because it lowers the barrier to sign up.

MRR (monthly recurring revenue)

The predictable subscription revenue you expect each month from active customers, with annual and quarterly plans converted to a monthly figure. See MRR and the MRR Calculator.

MRR = Sum of each active subscriber's monthly recurring charge

MRR movements

The changes that explain how MRR moved in a month: new, expansion, contraction, churned and reactivation MRR.

Multi-year discount

A lower annual price in exchange for a two- or three-year commitment.

N

Natural unit

A unit customers already understand and budget for, such as minutes, messages, pages or resolutions. Charging in a natural unit avoids the translation layer of credits.

Net negative churn

When expansion from existing customers is bigger than what you lose to cancellations and downgrades, so revenue grows even with no new customers. "Net. Negative. Churn." opens Chapter Nine of the book. See negative churn.

Net new MRR

New MRR plus expansion and reactivation, minus contraction and churned MRR.

Net revenue churn

Churned and contraction MRR minus expansion MRR, divided by starting MRR. If it's negative, you have net negative churn.

Network effects

When a product becomes more valuable to each user as more people use it. The book names six types.

New MRR

Recurring revenue from customers who started paying in the period.

North star metric

The one number a team uses to measure whether customers are getting value, such as nights booked or weekly active teams.

NPS (net promoter score)

The percentage of customers who'd strongly recommend you minus the percentage who wouldn't, from a 0 to 10 survey question.

NRR (net revenue retention)

Recurring revenue kept from an existing group of customers over a period, usually 12 months, after upgrades, downgrades and cancellations. Also called net dollar retention (NDR). See net revenue retention, NRR benchmarks and the NRR and GRR Calculator.

NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100

O

Offboarding

A deliberate process for customers who leave: understanding why, capturing feedback and leaving the door open. One of the book's churn best practices.

Onboarding

Everything that happens between sign-up and a customer's first real result. Weak onboarding is a leading cause of early churn.

Open-weight model

An AI model whose weights are published so others can run it themselves, often at a lower cost per token.

Optimal price point

In a Van Westendorp survey, the price where the share who think it's "too cheap" equals the share who think it's "too expensive."

Outcome-based pricing

Charging only when an agreed result happens, such as a resolved ticket. Fin charges $0.99 per resolution. See outcome-based pricing.

Output tokens

Everything an AI model writes back. Output usually costs about five times more than input at the largest vendors.

Overage

Usage above a plan's allowance, billed at a set rate. Make the rate clear and offer alerts before customers hit it.

P

Package pricing

Selling usage in fixed blocks, such as 1,000 messages for $10, rather than per unit.

Packaging

Deciding what goes into each plan: what's included, what's held back for upgrades and what's sold as an add-on. See packaging.

Pause

Letting a subscriber stop billing temporarily instead of cancelling. Often the best save offer.

Pay-as-you-go

Charging only for what a customer uses, with no commitment or base fee.

Paywall

The point where a free user must pay to continue, either by feature, by usage or by time.

Penetration pricing

Launching at a low price to win share quickly, planning to raise it later. Risky if customers anchor on the launch price.

Per-action pricing

Charging for each action an AI agent takes. Salesforce's Flex Credits work out at $0.10 per standard action.

Per-conversation pricing

Charging for each conversation an AI agent handles, whether or not it resolves it. Easier to forecast than per-resolution pricing.

Per-resolution pricing

Outcome-based pricing for support: charging only when an AI agent fully resolves a conversation. Examples include Fin at $0.99 and HubSpot at $0.50. See the Intercom Fin case study.

Per-seat pricing

A fixed fee per user on an account. Simple and predictable, but under pressure as AI lets teams do more with fewer people. See seat-based pricing and seat vs usage.

Per-unit pricing

A fixed price for each unit used, such as per message or per GB.

Platform (network effect)

A product others build on, such as an app store or integration marketplace, which becomes more valuable as more builders join. The fourth of the book's six network effects.

Pooled credits

Credits shared across a team or account instead of assigned per user, so light users subsidize heavy ones. Atlassian pools its Rovo credits across a whole site.

PQL (product-qualified lead)

A free or trial user whose behavior signals they're ready to buy, such as inviting teammates or hitting a limit.

Prepaid credits

Credits bought before use. Great for cash flow, but generally a liability on your balance sheet until used.

Price elasticity

How much demand changes when the price changes. If a 10% rise loses 20% of buyers, demand is elastic.

Price increase

Raising the price for new or existing customers. Work out your break-even churn first, give clear notice and tie it to value. See how to raise prices and raising prices in Australia.

Price lock

A promise not to raise a customer's price for a set period, often offered with annual plans.

Price sensitivity

How strongly customers react to price, measured with tools such as the Van Westendorp price sensitivity meter.

Pricing model

The structure of how you charge: flat, tiered, per seat, usage, credits, outcomes or hybrid. The book's five pricing models are Regular Fixed Fee Subscription, Advertising, E-Commerce, Transaction Processing, and Data and APIs. See pricing models and the Pricing Model Picker.

Pricing page

The page that shows your plans, prices and what each includes. Often the most important page on a subscription website. See pricing page examples.

Pricing power

The ability to raise prices without losing many customers. A sign of a strong moat.

Product-led growth (PLG)

A strategy where the product itself acquires, converts and expands customers. OpenView coined the term in 2016.

Product-led sales

Using product usage signals to tell a sales team which free or self-serve accounts to call. PLG plus a human for the biggest deals.

Product/market fit

When your product meets a real need in a good market so well that customers stay and tell others. The subject of Chapter Ten of the book.

Productized service

A service packaged like a product: a defined deliverable, a fixed price and often a monthly subscription. See productized services.

Prompt caching

Storing repeated instructions or documents with an AI model vendor so later calls can reuse them at a discount.

Proration

Charging or crediting a partial amount when a customer changes plan mid-cycle.

Q

Quick ratio (SaaS)

Growth efficiency measured as MRR gained divided by MRR lost. Quick ratio = (new + expansion MRR) ÷ (churned + contraction MRR). Above 4 is often treated as strong.

R

R&D tax incentive

An Australian government program that gives eligible companies a tax offset for qualifying research and development, which can include some software development. See the R&D tax incentive for software.

Ramp deal

A multi-year contract where the price steps up each year as the customer rolls the product out.

Rate card

The published table of what each action costs, in credits or dollars. Build one with the Credit Pack Designer.

Rate limit

A cap on how many requests a customer can make per minute or day, used to protect systems and margins.

Reactivation MRR

Recurring revenue from former customers who come back.

Reasoning tokens

The "thinking" an AI reasoning model does before answering, usually billed as output tokens.

Recurring revenue

Revenue that repeats on a schedule without a new sale each time. The foundation of the book's argument that subscription is "the ultimate business." See recurring revenue.

Recurring revenue multiple

A business's valuation divided by its recurring revenue. Higher growth, retention and margins usually mean higher multiples. See recurring revenue multiples and SaaS multiples.

Referral program

Rewarding customers for bringing in new ones. One of the book's four shoestring techniques, with six reward types. See referral programs.

Regular fixed fee subscription

The first of the book's five pricing models: a set amount charged every period for ongoing access.

Renewal

The point where a contract ends and the customer decides to continue. One sales professional I worked with called an annual renewal "poking the bear."

Retainer

A fixed monthly fee to reserve a firm's time or an agreed volume of work. See retainers vs subscriptions.

Retention rate

The share of customers, or revenue, kept over a period. The mirror image of churn.

Revenue churn

Recurring revenue lost to cancellations and downgrades, as a share of starting MRR.

Revenue recognition

The accounting rules for when revenue counts as earned. For subscriptions, revenue is generally recognized as the service is delivered, not when cash arrives. See revenue recognition.

Reverse trial

A trial of the paid plan that ends on a free plan instead of no access. See the reverse trial.

Rollover credits

Unused credits that carry into the next period. ElevenLabs rolls credits over for two months, up to three times the monthly quota.

Rule of 40

A software company's revenue growth rate plus its profit margin should be at least 40%. See the Rule of 40.

Rule of 40 score = Revenue growth % + Profit margin %

Runway

How many months a business can keep going before cash runs out. Runway = cash in the bank ÷ monthly net burn.

S

SaaS (software as a service)

Software sold as a subscription and delivered online. Model #7 of the book's eight. See the SaaS business model and SaaS pricing.

Save offer

An alternative offered during cancellation, such as a pause, a downgrade or a discount. Under Australia's 2027 rules it must not get in the way of an easy cancel. See cancellation rules in Australia.

Scarcity

Limiting availability, by number or time, to encourage a decision. Ethical only when the limit is real. See scarcity marketing.

Sean Ellis test

A product/market fit survey asking users how they'd feel if they could no longer use a product. 40% or more "very disappointed" suggests fit. See the Sean Ellis test and the PMF Survey Scorer.

Self-serve

Customers sign up, pay and upgrade without talking to sales.

Single point of failure

One customer, channel, supplier or person whose loss would cripple the business. Removing it is the "O" (One) in MOATS.

Skip

Letting a subscriber skip one delivery or billing period without cancelling. Common in subscription boxes.

SKU

A stock-keeping unit: one distinct product or plan in your catalog, used for billing and reporting.

Small model

A cheaper, faster AI model for simple tasks. In October 2026, small models such as GPT-6 Luna and Claude Haiku 5.5 cost $0.10 per million input tokens.

Soft limit

A usage limit that triggers a warning, a slower mode or overage rather than a hard stop.

Spend cap

A maximum a customer can be charged in a period, set by the customer or switched on by default. The simplest cure for bill shock.

Stairstep pricing

A flat fee for each band of usage: $50 for up to 1,000 units, $90 for up to 2,500, and so on.

Starving crowd

A market that's already hungry for a solution. The core idea of my first book, Feed a Starving Crowd. See the starving crowd principle.

Stickiness

How often customers come back, often measured as daily active users ÷ monthly active users (DAU/MAU).

Subscription

A recurring payment for ongoing access to a product or service. See the 8 subscription business models and how to start a subscription business.

Subscription box

Model #4 of the book's eight: a curated box of products delivered on a schedule. See subscription boxes.

Subscription fatigue

Customers' frustration at the number of subscriptions they pay for, which pushes them to cancel the least valued ones.

Subscription trap

A subscription that's easy to join and hard to leave, or that hides key terms. Australia's new rules, from 1 July 2027, target these practices. See Australia's subscription trap laws and check your flow with the AU Subscription Compliance Checker.

Switching costs

The time, money, risk or hassle a customer faces in moving to a competitor. The "S" in MOATS.

T

TCV (total contract value)

The full value of a contract over its whole term, including one-off fees.

Tiered pricing

Different prices for different packages or usage levels. The four main types are feature tiers, volume tiers, graduated tiers and stair-step tiers. See tiered pricing and design yours with the Pricing Table Builder.

Time to value

How long it takes a new customer to get their first real result.

Token

A small chunk of text an AI model reads or writes, about four characters or three-quarters of a word.

Token-based pricing

Charging for the input and output tokens an AI model processes, usually per million. See token-based pricing and the AI Token Cost Calculator.

Top-up

Extra credits or usage bought mid-cycle. Usually priced at a premium to the plan rate so plans stay the best deal.

Transaction processing model

One of the book's five pricing models: taking a small cut of each transaction you facilitate. It needs huge volume to work.

Trial-to-paid conversion

The share of trial users who become paying customers.

True-up

A reconciliation at the end of a period where a customer pays for usage or seats above what they committed to.

U

Unfair contract terms

Terms in standard form contracts that create a significant imbalance and aren't reasonably necessary to protect the business. Since 9 November 2023 they can attract penalties in Australia. See unfair contract terms.

Unit economics

The revenue and costs attached to one customer or one unit sold: CAC, LTV, gross margin and payback.

Unlimited content model

Model #3 of the book's eight: one fee for unlimited access to a library, like Netflix. See the unlimited content model.

Unlimited plan

A plan with no stated usage cap. In AI, "unlimited" almost always comes with a fair use clause, as Cursor learned. See how Cursor broke unlimited.

Upsell

Offering an existing customer a bigger or better version of what they buy. "Would you like fries with that?" is the book's classic example.

Usage-based pricing

Charging by how much of the product a customer uses. Chapter Four of the book calls it the natural evolution of the subscription model. See usage-based pricing and usage-based vs subscription.

Usage tier

A band of usage with its own price, such as 0 to 1,000 calls.

V

Value-based pricing

Setting your price from the value customers get, not your costs. See value-based pricing.

Economic value = Reference value + Differentiation value

Value metric

The unit your price is based on, such as users, transactions or resolutions. The book's test: value-based, scalable, flexible, feasible and predictable. Score yours with the Value Metric Finder.

Value proposition

A clear statement of who you help, with what, and why you're better than the alternative.

Van Westendorp price sensitivity meter

A four-question pricing survey created in 1976: too cheap, a bargain, getting expensive, too expensive. See Van Westendorp and the Van Westendorp Calculator.

Verb in a category

When a product is so widely used its name becomes the action, like "Xerox it." The sixth of the book's network effects.

Vertical SaaS

Software built for one industry, such as construction, dental or logistics.

Volume pricing

Usage pricing where every unit is charged at the rate of the band the customer reaches.

Voluntary churn

Customers who actively choose to cancel.

VSL (video sales letter)

A video that sells an offer the way a written sales letter does. See video sales letters.

W

White label

A product sold under another company's brand. Cloud Campaign's white-labeled client report was the "aha" moment for agencies in the book.

Willingness to pay (WTP)

The highest price a customer will pay before walking away. See how to measure willingness to pay.

Win-back

A campaign to bring former customers back, usually with news of what's improved or a returning offer.

Z

Zero-dollar tier

A free plan. Its real cost is the cost to serve each free user, which is close to zero for most software and very real for AI products.

Which terms matter most in 2026?

If you only have time to learn one new set of words this year, make it the AI pricing vocabulary. In 2026, most AI products are sold through some mix of seats, credits, usage and outcomes, and the businesses that got burned were the ones whose customers couldn't translate the new words into dollars.

Here's the chain to understand, from cost to price:

The further down that table you price, the closer you are to the customer's view of value, and the harder the result is to measure. For the full picture, read the AI pricing guide.

What to do next

Bookmark this page. Then pick the three terms you use least confidently in your own business and read their deeper guides this week.

If you want the numbers behind the words, start with the MRR Calculator and the Churn Rate Calculator. If you sell anything with AI inside, cost one task with the AI Token Cost Calculator, then turn it into a rate card with the Credit Pack Designer.

And if you want the stories behind these terms, they're in the book.

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Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.