SaaS Quick Ratio
The SaaS Quick Ratio measures the efficiency of revenue growth by dividing revenue added (new + expansion MRR) by revenue lost (churned + contraction MRR). A quick ratio of 4 means you add $4 of revenue for every $1 lost. Higher is better — it means your growth engine is outpacing your leakage.
Why SaaS Quick Ratio Matters for SaaS Companies
The quick ratio reveals the quality of your growth. Two companies can both grow 10% monthly, but one might add $200K and lose $100K (ratio of 2) while another adds $120K and loses $20K (ratio of 6). The second company has more durable, capital-efficient growth. For Seed to Series B companies, the quick ratio is a leading indicator of whether growth will sustain or stall.
Formula
SaaS Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
Benchmark
Best-in-class: above 4. Good: 2-4. Concerning: 1-2. Shrinking business: below 1.
Tools for Measurement
An Operator's Take
I think of the quick ratio as a growth durability test. A ratio below 2 means you are on a treadmill — running hard but barely moving forward. Most of your new revenue just replaces what you lost. I have seen companies celebrating 15% MoM growth with a quick ratio of 1.5. At that ratio, any slowdown in acquisition causes revenue to decline because churn is eating the base. We shifted focus from acquisition to retention, improved the ratio from 1.5 to 4, and growth became self-sustaining.
Common Mistakes
What I see go wrong at Seed to Series B companies.
Focusing only on the numerator (adding more revenue) without addressing the denominator (reducing churn). Plugging the leaks is often faster than opening the faucet wider.
Not tracking the quick ratio over time. A declining trend is an early warning even if the absolute number looks healthy.
Confusing quick ratio with growth rate. You can have a high growth rate with a low quick ratio (lots of revenue in, lots of revenue out).
What to Do This Week
Concrete steps you can take right now.
Calculate your SaaS Quick Ratio for each of the last 6 months. Is the trend improving or deteriorating?
If below 4, calculate how much churn reduction would be needed to reach 4 vs. how much additional new revenue. Usually, churn reduction is the faster path.
Break down the ratio components: which is the bigger drag — churn or contraction? That determines your fix.
Related Resources
Frequently Asked Questions
What is a good SaaS Quick Ratio?
A ratio of 4 or higher is considered healthy — you add $4 of revenue for every $1 lost. Between 2-4 is acceptable but shows room for improvement. Below 2 signals a growth efficiency problem — too much revenue is leaking out relative to what you bring in.
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