What is
SaaS Quick Ratio
?
The SaaS Quick Ratio measures a subscription company’s ability to grow recurring revenue in spite of churn. It is calculated by taking the sum of New MRR and Expansion MRR and dividing it by the sum of Churned MRR and Contraction MRR. Essentially, it answers the question: 'For every dollar we lose to churn, how many dollars are we adding?' A Quick Ratio of 4.0 or higher is considered exceptional, indicating highly efficient growth. A ratio of 1.0 or lower means the business is stagnant, as every new dollar gained is simply replacing a dollar lost. The Quick Ratio is a favorite metric for VCs because it provides a holistic view of both the 'growth engine' and the 'retention engine' in a single number. It exposes companies that have high top-line growth but suffer from a massive churn problem, which would otherwise be hidden if only looking at gross new sales.
Frequently asked questions.
What does a Quick Ratio of 4.0 mean?
It means for every $1 lost to churn, the company is adding $4 in new recurring revenue.
Why do investors care about the Quick Ratio?
It measures the efficiency of growth; a ratio below 1.0 means the 'leaky bucket' is bigger than the pump.
Does the Quick Ratio include contraction?
Yes, the denominator is the sum of Churn MRR and Contraction MRR.
How often should I measure this?
Monthly measurement is essential to catch retention shifts before they become trends.
Is it better for SMB or Enterprise?
It's universal but often more volatile for SMB due to higher churn rates.
