A SaaS metric commonly overlooked is the Quick Ratio, which measures the growth efficiency in a company. Simply, it lets you know how well your SaaS company can grow its recurring revenue.

Quick Ratio is calculated by dividing total new MRR by total lost MRR. The higher the ratio, the healthier your company’s growth is.

Quick Ratio = (New MRR + Expansion MRR) / (Churn MRR + Contraction MRR)

Here are more details about MRR.

Let’s use a few simple examples to show the value of understanding the Quick Ratio:

Example 1:

$20,000 (New MRR + Expansion MRR) / $10,000 (Churn MRR + Contraction MRR)
= 2 Quick Ratio

Example 2

$15,000 (New MRR + Expansion MRR) / $5,000 (Churn MRR + Contraction MRR)
= 3 Quick Ratio

Example 3:

$12,000 (New MRR + Expansion MRR) / $2,000 (Churn MRR + Contraction MRR)
= 6 Quick Ratio

Even though the net MRR is $10,000 in all three examples, the quick ratios are all different. The highest Quick Ratio, 6, is shown in the third example. That means that for every $1 dollar lost, $6 is earned. This is clearly the most efficient scenario, as it’s able to add the same net MRR with the least amount of effort. In comparison, that’s much better than the first example, where only $2 is earned for every $1 lost.

The Quick Ratio for SaaS can be categorized in the following benchmarks:

< 1 = Your business is on a slow ramp of death. This means that you’re losing MRR revenue every month.

1 = Your business is at a stand-still. You are neither gaining nor losing MRR.

> 1 and < 4 = Your business is growing moderately. This is a relatively safe place to be in.

> 4 = Your business is experience hyper-growth. This is where you should strive to be!

Obviously, the aim is to get the Quick Ratio as high as possible. This is a very simple, yet telling metric that every SaaS should monitor. It also helps unmask high growth rates with any underlying churn issues.

What is your SaaS Quick Ratio?