SaaS Quick Ratio

What is SaaS Quick Ratio?

SaaS Quick Ratio measures how much a company’s revenue is growing compared to its losses.

It answers the question: “For every dollar of lost revenue, how many dollars of new revenue are we generating?”

How to Calculate SaaS Quick Ratio?

The Formula for SaaS Quick Ratio

SaaS Quick Ratio = (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)

Where:

New MRR = Revenue from new customers

Expansion MRR = Additional revenue from existing customers

Contraction MRR = Lost revenue from downgrades

Churned MRR =  Lost revenue from cancellations

Example Time! ✨

Let’s say for a month:

• New MRR = $50,000
• Expansion MRR = $20,000
• Contraction MRR = $5,000
• Churned MRR = $10,000

Calculation:

• ($50,000 + $20,000) / ($5,000 + $10,000) = 4.67

This means for every $1 lost, the company generates $4.67 in new revenue!

What is a Good SaaS Quick Ratio?

The magic numbers to know: 🎯

• Less than 1: 😟 Red flag! Losing more than gaining
• 1-2: 😐 Okay, but needs improvement
• 2-4: 😊 Healthy growth
• 4+: 🤩 Excellent growth!

Why is SaaS Quick Ratio Important?

It’s your growth health checker! 🏥

Growth Quality 📈

• Shows sustainable vs unsustainable growth
• Indicates sales efficiency
• Reveals customer satisfaction

Investment Decisions 💰

• Helps evaluate business health
• Guides resource allocation
• Informs fundraising timing

Strategic Planning 🎯

• Identifies areas for improvement
• Guides marketing spend
• Helps set realistic goals