SaaS quick ratio: formula, benchmarks and a worked example

What is the SaaS quick ratio?

The SaaS quick ratio measures how efficiently a subscription business grows by comparing the recurring revenue it gains with the recurring revenue it loses over the same period:

SaaS quick ratio = (new MRR + expansion MRR) ÷ (churned MRR + contraction MRR)

• New MRR: from new customers.
• Expansion MRR: upgrades, add-ons and price increases from existing customers.
• Churned MRR: from customers who cancelled.
• Contraction MRR: downgrades and discounts from customers who stayed.

A ratio of 4 means the company adds four dollars of monthly recurring revenue for every dollar it loses. The metric was popularized by Mamoon Hamid of Social Capital in 2015.

Benchmarks

Benchmarks depend on stage. Very early companies can show high ratios simply because they have few customers to lose; mature companies with low churn can grow well with lower ratios.

Worked example

Three months for a B2B SaaS (sample data, $):

March brought the most new revenue of the quarter, yet the quick ratio fell to 2.3 because churn nearly doubled. Net new MRR alone (still +25,000) would have hidden that warning. Look at what churned in March: a cohort, a plan, a product change.

Why it is useful

• It separates growth quality from growth size. Two companies can add the same net MRR, one with low churn and one replacing heavy losses.
• It highlights retention. The denominator is all about keeping customers and revenue; see revenue churn and net revenue retention.
• It is quick to compute from billing data each month.

Limitations

• It ignores costs. A high ratio bought with heavy spending is not efficient; pair it with CAC payback or the burn multiple.
• It is noisy month to month. Use a three-month rolling figure.
• It stops being meaningful with almost no losses. A ratio of 30 in month two of a startup says little.
• It treats a dollar of expansion and a dollar of new revenue as equal, though their costs differ.

A user-based version

The same idea works with people instead of revenue: (new users + resurrected users) ÷ dormant users. Product analytics tools use it to judge whether the active base is growing healthily. TapCub's product engagement score includes this growth ratio, mapped onto a 0–100 scale; see product engagement score.

In TapCub

MRR movements come from billing data. Product analytics explains them: which cohorts churn, which accounts expand, and whether usage dropped before cancellations. Send subscription events (started, upgraded, downgraded, cancelled) with amounts to TapCub, then use retention by cohort and account analysis to find where the denominator comes from. See SaaS metrics and rule of 40.

Sources

• Hamid, M. (2015). Quick ratio as a measure of growth efficiency. Social Capital.
• Wall Street Prep. SaaS quick ratio.
• ChartMogul. SaaS quick ratio.