# Quick Ratio (SaaS)

## What is Quick Ratio?
The SaaS Quick Ratio measures growth efficiency by comparing how much revenue you're adding versus losing. It's calculated as (New MRR + Expansion MRR) divided by (Churned MRR + Contraction MRR).

A Quick Ratio of 4 means you're adding $4 in new revenue for every $1 you lose. The higher the ratio, the more efficient your growth engine.

## Why Quick Ratio Matters
Quick Ratio reveals whether you're growing from a position of strength or desperately trying to outrun a leaky bucket. A company adding $100K but losing $80K is in a very different position than one adding $100K and losing $20K.

Investors love this metric because it shows growth quality, not just growth quantity. High Quick Ratio companies can sustain growth even if new customer acquisition slows.

## How to Calculate SaaS Quick Ratio Step by Step

**Step 1: Pull your MRR movements for the month.** You need four numbers from your billing system. Most subscription platforms (Stripe, Chargebee, Baremetrics) can generate this breakdown.

**Step 2: Categorize each MRR change.**

- **New MRR:** Revenue from brand-new customers who signed up this month → $18,000
- **Expansion MRR:** Revenue increase from existing customers (upgrades, added seats, usage growth) → $7,500
- **Churned MRR:** Revenue lost from customers who cancelled → $4,000
- **Contraction MRR:** Revenue lost from customers who downgraded (but didn't leave) → $1,500

**Step 3: Apply the formula.**

- Revenue added = $18,000 + $7,500 = $25,500
- Revenue lost = $4,000 + $1,500 = $5,500
- **Quick Ratio = $25,500 ÷ $5,500 = 4.6**

You're adding $4.60 for every $1 you lose — excellent growth efficiency.

**Step 4: Track the trend.** A single month can be noisy. Calculate a 3-month rolling Quick Ratio for a clearer picture. If it's declining, either your acquisition is slowing or churn is increasing — dig into which.

**Step 5: Use Quick Ratio to diagnose growth problems.**

- High Quick Ratio (4+) with low absolute growth → Not enough new customer volume. Scale acquisition
- Low Quick Ratio (below 2) with high new MRR → Churn is eating your growth. Fix retention
- Declining Quick Ratio over time → You're scaling acquisition but not fixing the leaky bucket

**Common mistakes founders make:**

- Confusing SaaS Quick Ratio with the accounting Quick Ratio (acid-test ratio) — completely different metrics
- Not separating contraction from churn (they tell different stories)
- Including one-time revenue in the numerator
- Ignoring that Quick Ratio naturally declines as you scale (churn grows with customer base)

## Quick Ratio Benchmarks

Below 1: Shrinking. You're losing more than you're gaining. 1-2: Struggling growth. Too much energy fighting churn. 2-4: Healthy growth. Good balance. Above 4: Excellent. Very efficient growth engine.

Formula

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

Higher is better. Aim for 4+ for healthy growth.

Example

Monthly MRR movements:

- New MRR: $25,000
- Expansion MRR: $10,000
- Churned MRR: $6,000
- Contraction MRR: $2,000

Quick Ratio = ($25K + $10K) ÷ ($6K + $2K) = $35K ÷ $8K = 4.4

Excellent ratio. You're adding $4.40 for every $1 lost. Growth is healthy and efficient.