Quick Saas Ratio - Explained
SaaS Quick Ratio measures how efficiently your company grows. It compares the revenue you gain from new customers and expansions against the revenue you lose from churn and downgrades.
A high quick ratio means your growth is sustainable. A low one means you are running on a treadmill, adding customers just to replace the ones leaving.
The SaaS Quick Ratio Formula
Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
The numerator is all revenue coming in. The denominator is all revenue going out. The result tells you how many dollars you gain for every dollar you lose.
A quick ratio of 4.0 means you add four dollars for every one you lose. A ratio below 1.0 means you are shrinking.
What Each Component Means
New MRR is revenue from customers who signed up this month. Ten new customers at $500 per month equals $5,000 in new MRR.
Expansion MRR is revenue from existing customers who upgraded or added seats. A customer moving from $1,000 to $2,000 per month adds $1,000 in expansion MRR.
Churned MRR is revenue lost when customers cancel entirely. Two customers cancelling at $2,000 each equals $4,000 in churned MRR.
Contraction MRR is revenue lost when customers downgrade. A customer dropping from $2,000 to $1,000 per month means $1,000 in contraction MRR.
Quick Ratio Calculation Example
Say your SaaS had these numbers last month:
- New MRR: $50,000
- Expansion MRR: $15,000
- Churned MRR: $10,000
- Contraction MRR: $5,000
Your quick ratio calculation:
($50,000 + $15,000) / ($10,000 + $5,000) = $65,000 / $15,000 = 4.3
For every dollar lost, you gained $4.30. That is healthy, efficient growth.
SaaS Quick Ratio Benchmarks
The 4.0 benchmark was popularized by Mamoon Hamid at Social Capital. It has become the standard investors use to evaluate SaaS growth efficiency.
| Quick Ratio | Assessment | Action Required |
|---|---|---|
| Below 1.0 | Shrinking | Fix churn immediately |
| 1.0 to 2.0 | Weak growth | Focus on retention |
| 2.0 to 4.0 | Moderate growth | Improve efficiency |
| 4.0+ | Healthy growth | Scale with confidence |
Most SaaS companies fall between 1.5 and 2.5. The 4.0 target is aspirational but achievable with strong retention and expansion revenue.
Benchmarks by company stage:
Early stage companies pre-product-market fit often see ratios between 1.5 and 2.5. Churn is naturally higher when you are still figuring out what customers want.
Growth stage companies with product-market fit should target 3.0 or higher. If your ratio drops below 2.5 at this stage, something in your retention or acquisition is breaking.
Mature SaaS companies can sustain ratios between 2.0 and 3.0 as growth naturally slows, though the best operators still hit 4.0+.
Quick Ratio vs Net Revenue Retention
Quick ratio and NRR both measure revenue health but from different angles.
Net Revenue Retention looks only at your existing customer base. It shows whether those customers are expanding, staying flat, or contracting. NRR ignores new customer acquisition entirely.
Quick Ratio includes new customers in the equation. It measures your entire growth engine, not just retention.
This matters because quick ratio catches problems earlier. If your new customer acquisition is strong but expansion is collapsing, quick ratio will drop before NRR does. By the time NRR looks bad, quick ratio already warned you.
Use both. NRR tells you the health of your installed base. Quick ratio tells you whether your overall growth model works.
How to Calculate Your Quick Ratio
Pull your MRR data from your billing system. Stripe, Chargebee, and most subscription platforms can export this data directly.
You need four numbers for the month:
- Sum of MRR from new customers (New MRR)
- Sum of MRR increases from existing customers (Expansion MRR)
- Sum of MRR from cancelled customers (Churned MRR)
- Sum of MRR decreases from downgraded customers (Contraction MRR)
Add the first two. Divide by the sum of the last two. That is your quick ratio.
Watch out for these mistakes:
Do not include annual contracts paid upfront as MRR. Only measure monthly recurring revenue.
Segment your calculation if you serve different markets. Your overall ratio might look fine while your SMB segment is bleeding customers.
Track it monthly. One data point means nothing. A downward trend over three months means your growth engine is weakening.
How to Improve Your Quick Ratio
You can move quick ratio by working either side of the equation: increase the numerator or decrease the denominator.
Reduce churn to lower the denominator. Better onboarding gets customers to value faster. Proactive outreach to low-engagement accounts prevents cancellations before they happen. Fix the product gaps that cause customers to leave.
Increase expansion to raise the numerator. Add pricing tiers so customers have upgrade paths. Implement usage-based pricing so revenue grows as customers grow. Build complementary products you can sell to your existing base.
Grow new customer acquisition. Improve conversion rates through the funnel. Shorten sales cycles to close more deals with the same effort. Strengthen product-market fit so more prospects see clear value.
Most companies find the fastest wins in reducing churn and increasing expansion. New customer acquisition is expensive. Getting more revenue from existing customers is not.
Quick Ratio and Other SaaS Metrics
Quick ratio works best alongside other metrics, not in isolation.
CAC Payback Period tells you how long it takes to earn back your customer acquisition cost. A 4.0 quick ratio with a 24-month payback is worse than a 2.5 ratio with a 6-month payback.
LTV to CAC Ratio should be at least 3:1. Quick ratio indicates whether your LTV is trending up or down based on how efficiently you retain and expand revenue.
Rule of 40 combines growth rate and profit margin. Quick ratio reveals whether that growth rate is sustainable or built on a leaky bucket.
Investors look at quick ratio because it is hard to fake. It tells the truth about whether a business can scale profitably or is just spending money to grow.
Start Tracking Your Quick Ratio
Calculate your quick ratio this month. If it is below 2.0, prioritize retention and expansion work. If it is between 2.0 and 4.0, you are on the right track but have room to improve. Above 4.0 means your growth engine is working efficiently.
The metric responds to focused effort. Better retention, stronger expansion, and smarter acquisition compound into a higher ratio over time.
About the Author
Matt Smith
Serial entrepreneur and former big 4 consultant turned SaaS operator. Built and scaled analytics and data warehouses platforms at multiple enterprise Stripe companies before founding Mowt. Passionate about making complex metrics accessible to every founder.