Quick Ratio Metric
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Quick Ratio = New MRR + Expansion MRR / Churned MRR
Quick Ratio Definition
The Quick Ratio, devised by investor and co-founder of Social Capital Mamoon Hamid, gives investors, founders, and team members an immediate view of a SaaS company’s growth efficiency. The Quick Ratio shows the ratio of your revenue gains to your revenue losses, so you can see immediately if your company has both significant growth and low churn. 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.
Customer Acquisition Cost (CAC) Benchmark
Mamoon Hamid, Partner @ Social+Capital
- “If the company has a Quick Ratio of 4, they’re growing at a healthy rate, and have a low enough churn rate for me to invest.”
Quick Ratio Challenges
For companies in the first year of business, SaaS Quick Ratio isn’t so helpful. With young customers and customers still in a commitment period, the ratio isn’t a reliable indicator of anything. These newly established companies should focus their attention on individual metrics instead.
Quick Ratio Best Practices
Two of the best ways to use the Quick Ratio metric is for tracking and insights. In terms of tracking, Annie Musgrove from ChartMogul says to take note of accounts that are on contract as they may skew the calculation. She also suggests the best insights come from tweaking your analysis to discover new ways to improve. Segment the metric into different business elements (such as payment plan or business vertical) to identify any weaknesses in specific parts of your business. Tightening up there will boost your score. Additionally, examine the metric for specific periods. Though the formula is defined across a monthly period, analyzing quarterly or yearly periods could yield different results and prompt further investigation.
How to monitor Quick Ratio in real-time
Once you have established metrics for measuring your Quick Ratio, you’ll want to establish processes to monitor this and other SaaS KPIs on a continual basis. Dashboards can be critical in this regard.
Learn more about how to track your Quick Ratio on a SaaS Dashboard.
Quick Ratio: Top Resources
Mamoon Hamid of Social+Capital: Why Sh*t Really Gets Funded (Video + transcript), SaaStr
The Top SaaS Metrics of the Most Influential Venture Capitalists, Insights Squared
Benchmarking The SaaS Quick Ratio, Insights Squared
SaaS Metrics: How to Calculate Your Quick Ratio, Revenue Wired
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