Quick Ratio: Measuring the Velocity of SaaS Growth

Quick Ratio: Measuring the Velocity of SaaS Growth

The Quick Ratio is one of the simplest and most revealing ways to evaluate the health of recurring revenue.
It answers a single question: For every dollar you lose to churn, how many new dollars are you adding back?

In SaaS, growth means little if it leaks faster than it fills.
The Quick Ratio helps founders and investors see whether the business is growing efficiently — or just growing noisily.

At a Glance

Definition:
Quick Ratio = (New ARR + Expansion ARR) ÷ (Churned ARR + Contraction ARR)

Ideal Range:

• Healthy: 4×+
• Efficient: 5×+
• Exceptional: 6–8×

Recommended Playbook: Financial Planning & Budgeting

1. Why Quick Ratio matters

The Quick Ratio shows how fast your company is growing relative to the revenue it’s losing.

It’s a clean, capital-agnostic measure — meaning it doesn’t care how much you spend to grow, just whether growth is outpacing loss.

• A high ratio (4×+) means your growth engine is efficient and resilient.
• A low ratio (<2×) means your business is leaking value faster than it’s capturing it.

Investors often use Quick Ratio as a first-pass filter to judge SaaS durability — before diving into deeper metrics like NRR or CAC Payback.

2. How to calculate

[Quick Ratio](/glossary#quick-ratio-saas) = (New [ARR](/glossary#arr-annual-recurring-revenue) + Expansion [ARR](/glossary#arr-annual-recurring-revenue)) ÷ (Churned [ARR](/glossary#arr-annual-recurring-revenue) + Contraction [ARR](/glossary#arr-annual-recurring-revenue))

Example:
If you added $600K in new ARR, $200K in expansion, and lost $150K to churn and $50K to contraction:

[Quick Ratio](/glossary#quick-ratio-saas) = (600K + 200K) ÷ (150K + 50K) = 800K ÷ 200K = 4×

You’re growing four times faster than you’re shrinking — strong for a scaling SaaS.

3. Benchmarks by stage

As you scale, churn usually stabilises — so maintaining a Quick Ratio above 4× becomes the new baseline for healthy, repeatable growth.

4. How to interpret it

The Quick Ratio captures the net rhythm of your revenue — the dynamic between acquisition, expansion, and attrition.

The higher the Quick Ratio, the stronger your underlying product-market and customer success mechanics.

5. How it relates to other metrics

Quick Ratio provides a fast snapshot of performance, while NRR and GRR provide the slow story behind it.

6. Improving Quick Ratio

A. Reduce churn and contraction

Prioritise early warning signals (low usage, poor onboarding).
Each dollar saved to churn has 2–3× the impact of new ARR growth.

B. Increase expansion

Encourage account growth through usage-based pricing, add-ons, or tier upgrades.
Expansion revenue improves both numerator and retention.

C. Improve customer quality

Tighter ICP targeting reduces churn risk and improves conversion yield.

D. Strengthen product adoption

The deeper the product integrates into workflows, the harder it is to leave.

E. Balance growth pace

High growth can mask retention issues — sustainable velocity wins long term.

7. Example: interpreting Quick Ratio trends

Steady improvement here shows retention is compounding alongside new growth — the hallmark of efficient scaling.

8. Common pitfalls

• Counting bookings instead of realised ARR.
• Ignoring contraction (downgrades matter).
• Comparing across very different business models.
• Failing to normalise for seasonality (e.g., annual renewals).

Always compare like-for-like — same period, same recognition basis, same customer definition.

9. Investor perspective

Investors love the Quick Ratio because it’s simple and predictive.
It shows momentum — how fast the business turns opportunity into durable growth.

A Quick Ratio above 4× suggests strong PMF, healthy retention, and scalable efficiency.
Below 2×, it flags that churn is still dominating the growth equation.

10. Founder takeaways

• Track Quick Ratio quarterly alongside NRR and Burn Multiple.
• Aim for 4× or higher before ramping GTM spend.
• Use it as a pulse check — are you growing sustainably, or burning to stand still?
• Growth without retention isn’t growth — it’s deferred collapse.

The Quick Ratio shows whether your flywheel is self-reinforcing or self-draining.

Explore: Financial Planning & Budgeting
Compare: NRR vs GRR
Assess: Customer Success Playbook

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