Key M&A Terms Every Owner Should Know During Your First Sale

If this is your first time selling a software business, it can seem like there’s an entirely new language to learn. Between ARR, NRR, CLTV, the terminology can quickly become overwhelming.

At Jonas Software, we’ve guided hundreds of owners – many selling for the first and only time, through this process. To help you feel informed and confident, we’ve outlined the key M&A (mergers and acquisitions) terms and performance metrics you’ll encounter along the way, explained in clear and practical terms.

Whether you’re beginning early conversations or preparing for an offer, understanding this vocabulary will help you focus on what matters most: finding the right long-term home for your business.

Selling Vocabulary – The M&A Dictionary

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Annual Recurring Revenue (ARR)

What It Means:

ARR represents the predictable and recurring revenue generated each year from all active customers.

Why It Matters:

ARR is one of the most important metrics for any SaaS or vertical market software business. It reflects the company’s stability, growth trajectory, and revenue predictability – key indicators acquirers analyze early in the process.

How To Calculate:

ARR = Total number of active customers × Average revenue per customer per year (ARPU)

Example: If you have 1,000 customers paying an average of $50 per year, your ARR would be $50,000.

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Net Revenue Retention (NRR)

What It Means:

NRR measures the percentage of recurring revenue retained from existing customers over time, accounting for expansions, upgrades, downgrades, and churn.

Why It Matters:

A rate above 100% signals that revenue growth from existing customers outweighs losses from churn or downgrades – a powerful indicator of customer loyalty and product value.

How To Calculate:

NRR = (ARR at start of period + Expansion revenue – Churned revenue) ÷ ARR at start of period × 100

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Churn Rate

What It Means:

Churn rate is the percentage of customers who cancel or don’t renew their subscriptions over a given period.

Why It Matters:

Churn directly affects recurring revenue and valuation. A lower churn rate means higher predictability and long-term sustainability.

How To Calculate:

Churn Rate = (Number of churned customers in a period ÷ Total number of customers at the start of the period) × 100

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Customer Acquisition Cost (CAC)

What It Means:

CAC measures how much it costs to acquire a new customer, including marketing, sales, and onboarding expenses.

Why It Matters:

A lower CAC compared to Customer Lifetime Value (CLTV) indicates an efficient, scalable business model.

How To Calculate:

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Customer Lifetime Value (CLTV)

What It Means:

CLTV estimates the total revenue a business can expect from a single customer throughout their relationship with your company.

Why It Matters:

CLTV helps determine how much you can afford to spend on acquiring and retaining customers.

How To Calculate:

Why These Metrics Matter

These metrics tell the story of your business: how consistent your revenue is, how loyal your customers are, and how effectively you grow.

At Jonas we look beyond short-term numbers. Our focus is on understanding the long-term resilience of your business and the strength of the relationships that sustain it. We value the commitment software owners have shown to their customers and teams.

Our acquisition model is simple: we buy and hold forever, allow your business to operate autonomously, and provide a culture to share best practices with other businesses. That means we’re not driven by exit timelines. We’re committed to ensuring your business and its legacy continue to thrive well into the future.

The Importance of Understanding Key Terms

Selling your software business is a major milestone and understanding the language of M&A makes the journey smoother and more transparent.

How Do You Sell Your Software Business for the First Time? Everything You Need to Know

When you’re familiar with the terms and what they represent, you can engage in more meaningful conversations, ask the right questions, and make informed decisions at every stage.

Our conversation with Portfolio CEO, Denis Brosnan explains this very principle in his interview which you can find here.

We take pride in making the process clear, respectful, and enduring – because we don’t just acquire great software companies; we continue the legacies behind them.