SaaS Quick Ratio Calculator

Think of the SaaS Quick Ratio as a health tracker for your subscription business. It allows you to monitor if your revenue is growing faster than the losses from subscription fees. The higher the ratio, the more sustainable the company’s growth, as it earns more than it loses.

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SaaS Quick Ratio

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The SaaS Quick Ratio measures the growth efficiency of a SaaS business by comparing revenue growth (new and expansion MRR) to revenue losses (churned and contraction MRR). A ratio above 4 is considered healthy, while below 1 indicates more revenue is being lost than gained.

How to Calculate SaaS Quick Ratio

To calculate your SaaS Quick Ration Rate, please follow these steps:

Identify your New MRR. This is the revenue generated from new subscriptions in a given month. For example, a startup might have $5,000 in new MRR, while a larger company could have $50,000.
Determine your Expansion MRR. This is the additional revenue from existing customers, such as upgrades or add-ons during the same month. A small business might see $1,000 in expansion MRR, and a more established one, $15,000. To accurately find this value, you can use the Expansion MRR calculator.
Calculate the sum of your New MRR and Expansion MRR. Using our examples, that would be $5,000 + $1,000 = $6,000 for the small business, and $50,000 + $15,000 = $65,000 for the larger company.
Find your Churned MRR. This is the monthly recurring revenue lost from cancellations. Let’s say the startup lost $2,000, and the larger company lost $10,000 in churned MRR. These revenue losses form the denominator of your Quick Ratio. To understand the overall impact of these losses, you can calculate your Churn MRR Rate.
Identify your Contraction MRR. This is the reduction in monthly revenue from downgrades or discounts. The startup might have $500 in contraction, while the larger firm, $2,000.
Calculate the sum of your Churned MRR and Contraction MRR. This would be $2,000 + $500 = $2,500 for the smaller business and $10,000 + $2,000 = $12,000 for the larger.
Divide the sum of New MRR and Expansion MRR by the sum of Churned MRR and Contraction MRR. For the startup: $6,000 / $2,500 = 2.4. For the larger firm: $65,000 / $12,000 = 5.42. This is your SaaS Quick Ratio.
Note: A Quick Ratio above 1 indicates growth, and the higher the number, the more efficient your growth is. Be sure to calculate using the same time period for all MRR inputs.

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

What is the Quick Ratio in SaaS?

Imagine a company as a bucket where new revenue flows in and lost revenue leaks out. The Quick Ratio in SaaS helps determine if the bucket is filling up faster than it’s leaking. Essentially, this metric is calculated by dividing the new monthly recurring revenue by the churned revenue.

This calculation reveals whether the business is growing or shrinking, with a higher ratio indicating stronger growth. It’s a simple yet powerful way to assess the financial health of a SaaS company.

The Quick Ratio provides insight into your MRR dynamics. For another perspective on MRR health, including all changes, you might also want to compute your Net MRR Churn.

Evaluates overall business health, showing if growth is outpacing losses.
Informs strategic decisions by highlighting areas needing more resource allocation.
While the Quick Ratio measures this efficiency, you can also track overall top-line expansion by using the SaaS Growth Rate calculator.

Practical Examples of SaaS Quick Ratio

Example 1: A SaaS company sees $10,000 in monthly revenue gained from new and expanded contracts, while experiencing $4,000 in losses from churned contracts. Calculating the Quick Ratio: $10,000 / $4,000 = 2.5. This indicates a healthy growth scenario as they are gaining more than they’re losing.
Example 2: A smaller SaaS startup gains $5,000 in a month but loses $2,500. The Quick Ratio here would be $5,000 / $2,500 = 2. This suggests a reasonably positive growth proportion, though there is notable churn affecting them.
Example 3: Consider a case where a SaaS firm gains $15,000 in monthly recurring revenue through upgrades and new clients but faces a high churn costing them $10,000. Their Quick Ratio, thus, would be $15,000 / $10,000 = 1.5, highlighting a less favorable balance between acquisition and loss.

Period	New MRR	Churned MRR	Quick Ratio	Period over Period Change	Percentage Change	Trend Analysis
Month 1	$50,000	$10,000	5.0	–	–	Starting period
Month 2	$60,000	$12,000	5.0	0.0	0.0%	Stable growth
Month 3	$80,000	$15,000	5.33	0.33	6.6%	Growth acceleration

SaaS Quick Ratio = (80000 + 5000) / (15000 + 2000) = 5

Different Ways to Calculate SaaS Quick Ratio

Basic Quick Ratio: Calculated as the sum of new and expansion MRR divided by the sum of churned and contraction MRR. It provides a general health overview of the SaaS company and its growth effectiveness.
Net New MRR Quick Ratio: Defined as the value of net new MRR divided by the value of churned and contraction MRR. It highlights growth stemming solely from new business, aiding in understanding net growth after accounting for losses.
Customer Count Quick Ratio: Replaces MRR with customer counts, including new, expansion, churned, and contraction customers. Useful for companies with fluctuating MRR or those in early stages focusing on customer acquisition.
Weighted Quick Ratio: Applies weights to different components based on business priorities. For example, prioritizing new MRR during high growth phases helps focus the analysis on specific business objectives.

How to Improve Your SaaS Quick Ratio

Conduct a monthly churn analysis: Identify the main reasons why customers leave, such as pricing, lack of features, or poor support. Develop an action plan targeting the top five reasons to curb churn.
Enhance monthly recurring revenue (MRR): Adjust your marketing strategies to attract higher quality customers more likely to remain loyal. Regularly, every quarter, review and refine your targeting based on the customer lifetime value.
Implement upselling strategies: Analyze your revenue sources. For high-value customers, consider upselling or cross-selling additional products or services to increase revenue and enhance customer dependency.
Increase customer engagement: Boost retention through enhanced support, the creation of tutorials, and active engagement on online forums and other platforms.