SaaS Quick Ratio
One-liner
A growth-efficiency ratio comparing recurring revenue gained to recurring revenue lost in a period: (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR), coined by Mamoon Hamid (Social Capital) and named as a convention, not a standard.
Why it diverges
The SaaS quick ratio has no codified standards-board definition. The only authority is the origin author, Mamoon Hamid, who coined it while at Social Capital, so it must be named as a convention. Within that origin definition the divergence is on the basis axis (MRR, the original form, vs an ARR restatement) and, because the ratio’s four inputs are the movement-bridge terms, it inherits the bridge’s contraction-vs-churn boundary: whatever moves a dollar between the Contraction and Churn buckets moves it within the denominator but does not change the ratio, while the New-vs-reactivation question can move the numerator. Hamid’s ”>= 4 is investable” rule of thumb is his hypothesis, not a standard; treat it as a reference and never assert the cutoff as settled.
Legitimate convention families
| Family | Axis | Method (short) | Representative source | Direction vs defensible |
|---|---|---|---|---|
| MRR-basis quick ratio (origin) | basis | (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR) | origin, Mamoon Hamid / Social Capital | the origin-author default |
| ARR-basis restatement | basis | the same four terms expressed on annualized recurring revenue | common practice (uncodified) | same ratio if the terms are consistent; depends on the basis matching the bridge |
What the investor likely recomputes on
A reader takes the quick ratio as a rough growth-efficiency signal (higher means growth is outrunning losses) and is indifferent to the MRR-vs-ARR basis as long as it is stated and the four terms are consistent, but discounts a number whose New, Expansion, Contraction, and Churn terms are not defined, and will not take Hamid’s >= 4 cutoff as a pass-fail line. The ratio shape is settled; the basis and the contraction-vs-churn split are bounded by the movement bridge, not fixed by it. Name the four terms and the basis against real numbers rather than assume them.
The defensible read
Name it as a convention with a Mamoon Hamid / Social Capital origin, state the four movement-bridge terms and the basis (MRR or ARR), and report the ratio without leaning on a benchmark cutoff. The aggressive move to avoid is presenting the quick ratio as a standard, or quoting Hamid’s ”>= 4” as if it were a codified threshold rather than his hypothesis (the same discipline as the magic-number and burn-multiple benchmarks). Principle: defensibility, not optimization.
The three axes
The quick ratio diverges on basis. Composition is settled by the origin: the ratio shape, recurring revenue gained (New + Expansion) over recurring revenue lost (Churned + Contraction), the four movement-bridge terms. Its one unsettled sub-question is inherited from the bridge, the contraction-vs-churn boundary (which only redistributes within the denominator) and whether reactivation belongs in the New term of the numerator. Basis is the divergence axis, MRR (the origin form) vs an ARR restatement, the same recurring-basis question as NRR and GRR applied to the four movement terms. Timing is the period the four terms are summed over (typically a quarter or a month), inherited from whatever period the movement bridge is run on.
See the three axes for the shared model.
Classic errors touching the quick ratio
- No entry in
classic-errors.mdmaps directly. The live errors are treating an uncodified convention as a standard, asserting the >= 4 cutoff as settled, and inheriting the gross-vs-net churn confusion through a mis-split denominator (folding contraction into churn or vice versa). - one-time-in-MRR inflating the New or Expansion numerator, which flatters the ratio. See
classic-errors.md.
Scope boundary
IN SCOPE (from the founder’s stated movement aggregates and the stated method): naming the four terms and the basis, computing the ratio from the stated New, Expansion, Churned, and Contraction figures, and flagging that the metric is a convention and the >= 4 cutoff a hypothesis. OUT OF SCOPE (named but not computed): the true contraction-vs-churn split inside the denominator and the reactivation classification in the numerator, which need customer-level deltas (the recognize-vs-reconstruct line per the README). The per-axis reconstruction from the client’s raw source systems is out of scope for this reference. Reconstructing it from raw source systems is a separate, multi-week effort the reference does not perform.
Citations
- Origin attribution (Mamoon Hamid, Social Capital) and the formula: forEntrepreneurs and SaaStr coverage attributing the metric to Hamid. Cite as origin-author. This attribution rests on secondary coverage and is not yet frozen in
canonical-definitions.jsonlike the other coined metrics (magic number, burn multiple); harden viacanonical-pull.jswhen a primary Hamid/Social Capital source is pinned. - The four inputs as the movement-bridge terms: see the MRR movement convention; the Board-defined components behind them in the canonical definitions.
- Hamid’s ”>= 4 is investable” is his hypothesis, kept reference-only, never asserted as a standard (the same discipline as the magic-number and burn-multiple benchmarks).