What it means
A subscription company signs new customers and upgrades existing ones, but also loses some customers and downgrades others. The SaaS quick ratio places those four movements in one comparison.
ChartMogul defines it as new MRR plus expansion MRR divided by churned MRR plus contraction MRR, where MRR means monthly recurring revenue. Start with new MRR, the recurring revenue from customers newly subscribed during the period, and exclude one-off implementation fees.
Add expansion from upgrades, added seats or new recurring products from current customers, and separate it from new-customer wins. On the loss side, count churn as the recurring revenue lost when a customer cancels fully, recording the lost amount and not just the number of customers, and count contraction when a customer downgrades but stays.
Use the same period for gains and losses, because a month of gained MRR divided by a quarter of lost MRR is not useful. A ratio of one means gains equal losses, above one means net MRR growth under these components, and below one means losses exceed gains.
Four is often cited as a healthy rule of thumb, but it is not a universal target, as company stage, pricing and growth plans matter. If no MRR is lost, the denominator is zero and the ratio is undefined or effectively unbounded, so report gains and zero losses instead of inventing a number.
A ratio of four on tiny amounts can be less impressive than substantial net growth at a lower ratio, so show currency values alongside the ratio, together with net new MRR, which is gains minus losses. State conventions for reactivations, currency effects and annual contracts, converting annual amounts consistently to monthly equivalents, since cash collected upfront is not all one month's MRR.
The ratio blends new and existing customers, so a strong sales engine can conceal poor retention, and churn cohorts should be inspected separately. Net revenue retention looks at how an existing customer cohort changes, excluding new-customer MRR, whereas the quick ratio includes it.
It is unrelated to the traditional quick ratio, which compares liquid current assets with current liabilities, and it is not a measure of cash efficiency, margin or profit. For owners, the ratio tells whether new and expansion MRR are outrunning losses.
Read it with churn, net growth, margin and cash use, check that billing and CRM events reconcile to the recurring revenue roll-forward, and prefer several periods to a one-month spike, particularly when the MRR amounts themselves are disclosed.
In practice
Real-world examples.
Example
New MRR of $80,000 plus expansion of $20,000 offsets $25,000 of churn and contraction, giving a ratio of 4 and net new MRR of $75,000.
Example
A company with zero churn reports the numerator and denominator rather than dividing by zero. Its board sees gains of $30,000 and losses of $0 instead of an invented ratio.
Example
A strong ratio is checked against actual net MRR growth and acquisition cost. The finance lead finds that a ratio of 4 was achieved only after heavy discounting, so the growth is less valuable than it looks.
Formula
Calculation
SaaS quick ratio = (new MRR + expansion MRR) / (churned MRR + contraction MRR). Report the period and the input amounts.
Worked example: in one month, new MRR is $80,000, expansion MRR is $20,000, churned MRR is $20,000 and contraction MRR is $5,000. The ratio = ($80,000 + $20,000) / ($20,000 + $5,000) = $100,000 / $25,000 = 4, and net new MRR = $100,000 - $25,000 = $75,000.
Compare a second company with new MRR of $9,000, expansion of $1,000, churn of $2,000 and contraction of $500. Its ratio is $10,000 / $2,500 = 4 as well, but its net new MRR is only $7,500, which shows why the ratio must be read next to the dollar amounts.Case study
Seen in the real world.
Entirely fictional case: Orbit Software reports a quick ratio of four. Its team discovers that the figure came from a small month with unusually low churn and a costly acquisition push. Orbit checks subsequent months, net new MRR and acquisition economics. It keeps the ratio as a signal, not a stand-alone success grade.
In the next two months the ratio falls to 2.4 and 2.9 as ordinary churn returns, while net new MRR stays positive at roughly $30,000 a month. The board concludes that the business is growing steadily, not spectacularly. Orbit then adds a churn cohort table next to the ratio, so a future spike in the number prompts questions instead of celebration.
Watch out
Common mistakes.
- Mixing monthly gains with quarterly losses.
- Including one-time setup revenue in MRR.
- Confusing the SaaS quick ratio with the liquidity quick ratio.
Questions
People also ask.
What is the SaaS quick ratio?
Recurring revenue gained divided by recurring revenue lost in the same period.
What does a ratio of four indicate?
It means four units of new and expansion MRR for each unit of churn and contraction MRR.
Does it show overall profitability?
No. It does not measure acquisition cost, profit or cash flow.
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