What is Quick Ratio?
Quick Ratio calculates the ratio of your revenue gains to your revenue losses. It packages all of the important company information into one number to understand the company’s growth efficiency.
How to calculate Quick Ratio:
New MRR + Expansion MRR / Churned MRR + Contraction MRR = Quick Ratio
Tracking your Quick Ratio will help you understand your own company better by considering both the effectiveness of your customer acquisition and your retention efforts. This ratio gives you a glimpse into how sales, marketing, product and customer teams are doing. Overall, 4 is a healthy quick ratio for a SaaS business, but you will want to consider the specific context of your own business before you compare yourself to this benchmark.
SaaS companies younger than a year or two will have effectively zero churn. For young companies, the Quick Ratio is purely a measure of growth, thus, it is infinitely more interesting to monitor it for more mature companies. In the early stages of a SaaS business, high Quick Ratios are attainable through strong sales, marketing and other customer acquisitions channels. As the company scales and the growth rate slows, maintaining a high Quick Ratio becomes a matter of keeping churn down, and, once it matures, the focus will be on constantly improving the service and continuing to deliver value to customers in order to preserve a positive Quick Ratio.
How should you visualize Quick Ratio?