# SaaS Quick Ratio Explained.

The other day I was looking at our growth dashboards of Blue

I saw an interesting metric listed that I had never seen before, and this was the **SaaS Quick Ratio.**

It turns out that for SaaS companies, this is a really great measurement of growth efficiency. It answers the question of how reliably a SaaS company can grow its revenue given the current revenue churn rate that it is experiencing.

In a nutshell: *How efficient is your growth?*

The formula is as follows:

`Quick Ratio = (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)`

And let’s also define all these terms:

**MRR**— Monthly Recurring Revenue**New MRR**— MRR that is coming from new customers**Expansion MRR**— MRR from existing customers (i.e. upgrades)**Contraction MRR**— MRR that has been lost from existing customers that month (i.e. downgrades)**Churned MRR**— MRR that has been lost because customers have cancelled their accounts.

ProfitWell gives a really good example of how a SaaS Quick Ratio can help differentiate two companies that have the same $ value in growth in a given month:

Let’s say two companies each grow by $25,000 in a given month. Company A can have $50K in New and Upgrades, while losing 25k to Downgrades and Churn. They have a quick ratio of 2.

Company B can have only 30k in New and Upgrades, but lose $5k in Downgrades and Churn. They have a quick ratio of 6.

Company B’s growth rate is much more efficient in the long run.