In this episode, Dave "CAC" Kellogg and Ray "Growth" Rike discuss the SaaS Quick Ratio, a SaaS metric first introduced in 2015 with the goal to measure ARR growth efficiency by comparing New ARR growth versus existing customer ARR contraction.
The SaaS Quick Ratio borrows a concept used in general finance known as the "Quick Ratio" - which measures a company's ability to pay it's current liabilities.
The formula used to calculate the SaaS Quick Ratio is:
(New Logo ARR + Expansion ARR)/ (Churned ARR + Down-Sell ARR)
Traditional wisdom says a SaaS Quick Ratio above 4 is good, between 1-4 is ok but beware that ARR growth is not as efficient as it should be and less than 1 is highly inefficient growth - an ARR leaky bucket!
If you are a SaaS operator and looking for an easy metric to calculate that quickly highlights ARR growth efficiency as measured by the ratio of New ARR versus Lost ARR - The SaaS Quick Ratio may be for you.
Listen to the entire episode to hear CAC and Growth discuss the nuances of the SaaS Quick Ratio!
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