Most SaaS companies look at growth rate as their compass metric, and have laser-focus on keeping this as high as possible in order to grow their company.
But looking at just growth can disguise high churn rates. If you’ve got high customer acquisition, it can inflate your growth rate and make it look like you are on track for success. In reality, you could be losing revenue and customers through fundamental problems in your business mode, and missing it completely if you’re only looking at your headline growth rate.
This is why SaaS entrepreneurs and investors have started using the Quick Ratio to understand the growth of a company. 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. It packages all of the important information about your company into one number.
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. In a single ratio, you can see how your sales, marketing, product, and customer success teams are doing, before deep-diving into the number and analyzing exactly where you’re succeeding and where you need to pick up the pace.
Here is how you can compute a Quick Ratio for your company, how you can use it to understand your growth better, and ultimately drive your SaaS business forward.