The SaaS Quick Ratio measures the growth "efficiency" of a SaaS business, by comparing its new revenue growth (from new customers and upgrades) to its revenue losses (from churns and downgrades) in a specific period. This metric is intended to provide a more reliable picture of a business's health, by reducing the risk that high growth rates are masking unsustainable churn rates and stressing "quality" (long-term) growth, i.e. not all revenue is created equal.
The SaaS Quick Ratio formula reads:
Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
The list below clarifies the meaning of each item in the formula:
New MRR = MRR from acquiring new customers
Expansion MRR = MRR derived from existing customers' upgrades
Churned MRR = Lost MRR from customers that left
Contraction MRR = lost MRR from existing customers' downgrades
A SaaS Quick Ratio of 4.0 is the most used benchmark that companies aim to reach (or overcome). That implies that for every $4 in revenue, only $1 is lost from churn or contraction.
