SaaS Quick Ratio

SaaS Quick Ratio is designed to compare your revenue growth over a particular time period `SaaS Quick Ratio = (New MRRt + Expansion MRRt) / (Churned MRRt + Contraction MRRt)`

MEASUREMENT

analysis of real-world SaaS Quick Ratios showed that successful, fast growing SaaS companies sustain an average Quick Ratio of 3.9.

QUICK RATIO < 1

means you’re losing revenue from churn faster than you can replace it with new MRR. If you sustained this ratio for more than a month or two, your company would be in serious trouble.

QUICK RATIO 1 - 4

means your revenue is growing faster than your churn rate, but crucially, you’re growing in an inefficient way: high churn is eating away at your growth potential (like the examples above).

QUICK RATIO > 4

The “optimum” SaaS Quick Ratio you’ll hear banded around is 4, put forward by founders and VCs (including Mamoon Hamid) alike. They recommend a target benchmark of 4 for two reasons:

To hit a Quick Ratio of 4, a SaaS company needs to be adding $4 in revenue for every $1 lost through churn or contraction. That creates a steep growth curve, and minimises the volatility associated with high churn: perfect for investment .

The benchmark also holds-up in the real-world. When InsightSquared analysed some of the fastest growing SaaS companies, they found an average Quick Ratio of 3.9. Chances are, if you can get your SaaS Quick Ratio to 4, and hold it there, you’re on a path to scale.