SaaS Quick Ratio Benchmark
Measuring the vitality of subscription-based software businesses has become increasingly important. While various metrics measure the business performance, one has emerged as a telling barometer of a company’s momentum.
This powerful measurement serves as a guidepost, helping to distinguish between excellent acceleration, moderate progress, and concerning decline in an increasingly competitive digital marketplace. Investors can see whether a business is truly gaining ground or quietly losing its footing.
As market conditions shift and economic headwinds challenge even the strongest players, understanding where a company stands relative to established benchmarks has never been more crucial.
How to calculate SaaS Quick Ratio?
The SaaS Quick Ratio is calculated using the formula:
SaaS Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
Where MRR stands for Monthly Recurring Revenue?
This metric helps SaaS companies evaluate their growth efficiency by comparing incoming revenue (from new customers and expansions) against outgoing revenue (from churn and downgrades).
A growing SaaS company generated $600,000 MRR from new customers together with $100,000 in expansion revenue from the current client base during a recent period. The business suffered $150,000 in MRR due to cancellations by customers and a $50,000 reduction in MRR from customer downgrades. Using these metrics, we will calculate the SaaS Quick Ratio for the company.
Revenue Metrics (in $000s)
| Metric | Amount |
|---|---|
| New MRR | 600 |
| Expansion MRR | 100 |
| Total MRR Growth | 700 |
| Churned MRR | 150 |
| Contraction MRR | 50 |
| Total Loss MRR | 200 |
| SaaS Quick Ratio | 3.5 (700/200) |
Where;
- New MRR includes the new customer revenue for a given period.
- Expansion MRR is additional revenue from existing customers – through upgrades or add-ons.
- Churned MRR is the revenue lost through cancellations by customers.
- Contraction MRR is the loss of revenue from existing customers downgrading subscriptions or reducing usage.
A SaaS Quick Ratio of 3.5 indicates robust growth efforts of the firm. This means that for every $1.00 decrease in MRR by way of churn and contraction, the company is creating $3.50 worth of fresh revenues.
It demonstrates how effectively it manages declining revenues through growth from new and existing client bases.
What is the SaaS Quick Ratio Benchmark?
The SaaS Quick Ratio benchmark generally considered good is 4 or higher. This means that for every $1 lost in revenue due to churn or contraction, the company is generating $4 in new or expanded revenue.
Here’s a breakdown of the benchmark ranges:
- Quick Ratio < 1: This indicates the company is losing revenue faster than it can replace it, which is a critical situation.
- Quick Ratio between 1 and 4: This suggests growth is present but potentially unsustainable.
- Quick Ratio > 4: This indicates a robust startup with healthy growth
| SaaS Quick Ratio | Growth Health |
|---|---|
| > 4.0 | Excellent growth |
| 3.0 - 4.0 | Strong growth |
| 2.0 - 3.0 | Moderate growth |
| 1.0 - 2.0 | Weak growth |
| < 1.0 | Shrinking business |
Note: It’s important to note that early-stage companies typically have higher quick ratios compared to mature ones, as they have fewer customers and less time in the market, which reduces potential churn.
Quick Ratio Overall (Timeline Data) for SaaS companies
This Quick ratio pattern likely reflects the initial surge in SaaS adoption during the pandemic, followed by market normalization and more recent economic challenges affecting technology spending.
The SaaS industry’s overall Quick Ratio peaked at ~2.55 in September 2021 and has since declined to ~1.82 by March 2024, showing a significant cooling in growth momentum.
| Date | Quick Ratio Overall |
|---|---|
| Dec 20 | ~1.95 |
| May 21 | ~2.30 |
| Sept 21 | ~2.55 (Peak) |
| Feb 22 | ~2.30 |
| Jul 22 | ~2.40 |
| Dec 22 | ~2.30 |
| May 23 | ~2.18 |
| Oct 23 | ~2.00 |
| Mar 24 | ~1.82 |
According to the health benchmarks, the industry has moved from “Moderate growth” (2.0-3.0) to nearly “Weak growth” territory (1.0-2.0).
Growth Trends In SaaS Companies
Recent trends show a decline from a peak and VC-backed companies consistently outperform bootstrapped ones in this metric, highlighting the impact of funding on growth efficiency in the SaaS industry.
Growth Phase (Dec 2020 – Sept 2021):
- Started at ~1.95 in December 2020
- Climbed to a peak of ~2.55 in September 2021
- This represents a 31% increase in just 9 months
Plateau Phase (Sept 2021 – Dec 2022):
- After reaching the peak, the ratio stabilized between ~2.30 and ~2.40
- This one-year period showed relative stability with minor fluctuations
Decline Phase (Dec 2022 – Mar 2024):
- Consistent downward trend from ~2.30 to ~1.82
- This represents a 21% decrease over this 15-month period
SaaS Quick Ratio by Funding Type
VC-backed companies consistently maintain higher Quick Ratios than bootstrapped companies, with a gap of approximately 0.8-1.7 points throughout the measured period.
| Date | Bootstrapped | VC-Backed |
|---|---|---|
| Dec 20 | ~1.25% | ~2.20% |
| May 21 | ~1.75% | ~2.75% |
| Sept 21 | ~1.55% | ~3.25% |
| Feb 22 | ~1.60% | ~3.00% |
| Jul 22 | ~1.75% | ~3.00% |
| Dec 22 | ~1.45% | ~2.85% |
| May 23 | ~1.35% | ~2.60% |
| Oct 23 | ~1.45% | ~2.25% |
| Mar 24 | ~1.40% | ~2.20% |
VC-backed companies showed higher volatility, peaking at ~3.25 in September 2021 before declining to ~2.20 by March 2024 (a 32% decrease). Bootstrapped companies maintained relatively steadier ratios, ranging from ~1.25 to ~1.75 with less dramatic fluctuations
The gap between VC-backed and bootstrapped companies has narrowed from a peak difference of ~1.7 in September 2021 to ~0.8 in March 2024, suggesting potential convergence in growth profiles.
Market Dynamics of SaaS Quick Ratio
The peak in September 2021 likely reflects the heightened digital transformation demands during the pandemic, with a subsequent normalization as markets stabilized. The consistent decline from 2022 through 2024 aligns with broader economic challenges including inflation, rising interest rates, and tech market corrections.
The narrowing gap between VC-backed and bootstrapped companies suggests tighter venture capital markets and potentially more disciplined growth strategies being implemented across the industry.
Is Your SaaS Company Growing Efficiently?
Is your SaaS company growing efficiently, or are you just burning cash? The Quick Ratio is your vital sign, revealing the balance between new revenue and losses from churn. A ratio above 4.0 signals excellent growth, while anything below 1.0 indicates a shrinking business. Our data shows overall SaaS Quick Ratios trending downwards, making efficient growth more critical than ever.
Want to ensure your equity is aligned to support sustainable growth and attract investors? Eqvista offers comprehensive cap table management and valuation tools to help you optimize your financial strategy. Schedule a free consultation today to see how Eqvista can help you maximize your SaaS company’s potential!
