SaaS quick ratio
sass kwik RAY-shee-oh
New MRR plus expansion MRR divided by churned MRR plus contraction MRR. Measures whether your growth outpaces your losses.
The SaaS quick ratio compares how fast you add revenue to how fast you lose it. The numerator: new MRR from new customers plus expansion MRR from existing customers. The denominator: churned MRR from lost customers plus contraction MRR from downgrades. A ratio above 4 is excellent. Below 1 means you are shrinking.
This ratio reveals the quality of your growth. A company adding $100k in new MRR but losing $80k to churn has a quick ratio of 1.25. They are growing, but barely. Most of their effort goes to replacing lost revenue. A company adding $100k and losing $20k has a quick ratio of 5.0. They are growing efficiently.
The SaaS quick ratio is different from the traditional accounting quick ratio (which measures liquidity). The SaaS version was popularized by Mamoon Hamid at Social Capital and measures revenue growth quality, not balance sheet health.
Examples
Calculating the SaaS quick ratio.
New MRR: $50k. Expansion MRR: $30k. Churned MRR: $15k. Contraction MRR: $5k. Quick ratio: ($50k + $30k) / ($15k + $5k) = $80k / $20k = 4.0. For every $1 lost, the company adds $4. This is a healthy growth engine.
A low quick ratio despite high growth.
A company adds $200k in new MRR per month. Impressive. But they also lose $150k to churn and $30k to contraction. Quick ratio: $200k / $180k = 1.1. They are running on a treadmill. 90% of their new business replaces lost business. Only 10% is actual growth.
Using quick ratio to diagnose growth problems.
Quick ratio dropped from 3.5 to 2.0 over six months. New MRR stayed flat ($80k/month) while churn increased from $20k to $35k/month. The problem is not on the acquisition side. The problem is retention. The product team investigates and finds a feature gap causing mid-market customers to leave.
In practice
Read more on the blog
Frequently asked questions
What is a good SaaS quick ratio?
4.0 or higher is excellent. Between 2.0 and 4.0 is healthy. Between 1.0 and 2.0 means churn is consuming most of your growth. Below 1.0 means you are shrinking. Early-stage companies should aim for 4.0+. Mature companies with lower churn often settle around 2.0-3.0.
How is the SaaS quick ratio different from NDR?
NDR measures what happens to existing customer revenue (expansion minus churn and contraction). The SaaS quick ratio includes new customer revenue in the numerator. NDR tells you if your base is healthy. The quick ratio tells you if your total growth engine (new plus expansion) outpaces your losses.
Related terms
The monthly value of active subscription contracts. ARR divided by 12, or the sum of all monthly subscription fees.
The rate at which customers cancel or do not renew. Measured as logo churn (customers lost) or revenue churn (dollars lost).
The percentage of revenue retained from existing customers after expansion, contraction, and churn. Above 100% means you grow without new sales.
Additional revenue from existing customers through upsells, cross-sells, and increased usage. The engine of net-negative churn.
Want the complete playbook?
Picks and Shovels is the definitive guide to developer marketing. Amazon #1 bestseller with practical strategies from 30 years of marketing to developers.