SaaS Quick Ratio

The SaaS Quick Ratio is a metric used in the Software as a Service (SaaS) industry to measure the growth efficiency of a company. The SaaS Quick Ratio measures the ability of a SaaS company to grow recurring revenue in relation to churn. It’s an important metric for SaaS businesses because these businesses rely on subscription revenues, and therefore both growth and churn have a significant impact on the company’s future revenue and financial stability.

The Quick Ratio is calculated as follows:

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

Where:
– New MRR (Monthly Recurring Revenue) is the additional revenue from new customers.
– Expansion MRR is the additional revenue from existing customers, typically through upsells and cross-sells.
– Churned MRR is the lost revenue from customers cancelling their subscriptions.
– Contraction MRR is the lost revenue from existing customers downgrading their subscriptions.

A Quick Ratio of 1 means a company is growing at the same rate it’s churning, while a Quick Ratio greater than 1 indicates the company’s growth outpaces its churn. Ideally, a SaaS company should aim for a Quick Ratio of 4 or more, meaning its growth is four times its churn, signaling healthy growth efficiency.