What is the SaaS Quick Ratio?
The SaaS Quick Ratio measures the net inflows and outflows of revenue for a SaaS business to determine the direction of a company’s growth.
Why the SaaS Quick Ratio Is Important
The SaaS Quick Ratio is a key metrics for SaaS companies to track growth efficiency. A low ratio may indicate that a company is having difficulty sustaining revenue growth, while a high ratio may signal that a company is enjoying steady but high revenue growth. The SaaS Quick Ratio is also a commonly requested metric by investors.
Generally a SaaS Quick Ratio less than 1 represents a company that is in serious trouble. A result between 1 and 4 is average and represents a company that is growing, but perhaps growing inefficiently. A result greater than 4 represents a company that is growing efficiently at a good rate.
How to Calculate the SaaS Quick Ratio
The SaaS Quick Ratio measures booking growth through New and Expansion MRR and divides that by the lost bookings for existing customers through Downgrade and Churned MRR. The formula for the SaaS Quick Ratio is:
SaaS Quick Ratio = (New MRR + Expansion MRR) / (Downgrade MRR + Churned MRR)
For example, a company has new MRR of $30,000, upgrade MRR of $5,000, downgrade MRR of $4,000, and churned MRR of $8,000. The SaaS Quick Ratio for this company would be:
SaaS Quick Ratio = ($30,000 + $5,000) / ($4,000 + $8,000) = 2.92
In this example, the company appears to be growing at an average or good pace but may be lacking efficiency in its growth.