SaaS Quick Ratio

The SaaS quick ratio measures how efficiently a subscription business grows. It divides the recurring revenue added in a period (new customers plus expansion) by the recurring revenue lost in the same period (churn plus downgrades).

Why it matters

Two companies can grow at the same rate and be very different: one adds a lot but loses a lot, the other adds steadily and keeps what it wins. The quick ratio reveals that leakage. A commonly quoted rule of thumb says a ratio around 4 or higher indicates healthy, efficient growth, while a ratio near 1 means new revenue is only replacing losses. It is a heuristic rather than a strict standard, and it works best for companies with reasonably steady growth.

Example

Monthly recurring revenue changes
 New customers:   +30,000
 Expansion:       +10,000
 Churned:         -7,000
 Contraction:     -3,000

Quick ratio = (30,000 + 10,000) / (7,000 + 3,000) = 4.0

Common mistakes

• Using it for very early companies with tiny numbers, where one customer swings the result.
• Mixing time periods between additions and losses.
• Ignoring the cost of acquiring the new revenue.

Related

• MRR
• Churn rate
• Net revenue retention
• ARR

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