Quick Ratio (SaaS)
The ratio of revenue growth to revenue loss, calculated as (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR). Measures the efficiency of your growth engine.
Also known as: SaaS quick ratio
Formula
(New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
Why quick ratio (saas) matters
Quick ratio captures the balance between revenue you are adding and revenue you are losing in a single number. A quick ratio above 4 means for every dollar you lose, you add four - indicating healthy, efficient growth.
This metric is more nuanced than raw MRR growth because it reveals the quality of growth. Two companies growing MRR at 10% monthly could have very different quick ratios if one has high churn offset by aggressive acquisition.
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How to calculate quick ratio (saas)
Add New MRR and Expansion MRR, then divide by the sum of Churned MRR and Contraction MRR. A ratio above 4 is considered healthy for growth-stage companies. Below 1 means you are shrinking.
SaaS Quick Ratio Calculator
(New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
What is a good quick ratio (saas)?
A quick ratio above 4 indicates healthy growth. Between 2-4 is acceptable but suggests churn needs attention. Below 2 signals a leaky bucket that will be hard to fill. Best-in-class companies achieve 5+.
Common Mistakes
- -Not breaking MRR into all four components (new, expansion, churn, contraction)
- -Using the ratio in isolation without understanding absolute numbers
- -Ignoring seasonal variations that can temporarily skew the ratio
Pro Tips
- +Track quick ratio monthly and quarterly to spot trends
- +If your ratio is below 4, focus on reducing churn before increasing acquisition
- +Use the ratio to evaluate the impact of pricing changes - price increases may improve revenue but worsen churn
Related Terms
Monthly Recurring Revenue (MRR)
The predictable revenue a subscription business earns every month from all active subscriptions, normalized to a monthly amount.
Churn Rate
The percentage of customers or revenue lost over a given period. Customer churn measures account losses; revenue churn measures dollar losses.
Expansion Revenue
Expansion revenue is additional recurring revenue generated from existing customers through upsells, cross-sells, seat additions, or increased usage. It is the primary driver of net revenue retention above 100%.
Net Dollar Retention (NDR)
The percentage of recurring revenue retained from existing customers after accounting for expansion, contraction, and churn. Above 100% means existing customers generate more revenue over time.
Further Reading
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