# Most founders get SaaS quick ratio wrong > Founders often skip contraction MRR in quick ratio calculations, inflating growth metrics. - Title: Most founders get SaaS quick ratio wrong · Startup Fortune - Summary: Founders often skip contraction MRR in quick ratio calculations, inflating growth metrics. - Keywords: saas quick ratio, mamoon hamid, churned mrr, contraction mrr, new mrr, expansion mrr, investor metrics, startup growth, mrr, quick ratio calculation, Startup Fortune - Source: Startup Fortune — https://startupfortune.com/most-founders-get-their-saas-quick-ratio-calculation-wrong - Published: 2026-11-08T04:23:29+00:00 - Read time: 1 min - Topics: saas quick ratio, mamoon hamid, churned mrr, contraction mrr, new mrr, expansion mrr, investor metrics, startup growth, mrr, quick ratio calculation, startups, business ## Quick ratio definition The SaaS quick ratio measures growth quality using new MRR plus expansion MRR divided by churned MRR plus contraction MRR. > The SaaS quick ratio is new MRR plus expansion MRR, divided by churned MRR plus contraction MRR. ## Common mistake Most founders omit contraction MRR from the denominator, inflating the ratio from 2.0 to 3.2. > Leaving contraction out of the bottom line is the most common mistake, and it can lift a ratio of 2.0 to 3.2. ## Investor benchmark Mamoon Hamid's 2015 benchmark for healthy early-stage SaaS is a ratio of 4 or higher. > The benchmark popularised by investor Mamoon Hamid in 2015 is 4 or higher, while a ratio near 1 means you're running to stand still. ## Ratio calculation Calculate monthly using new MRR, expansion MRR, churned MRR, and contraction MRR from billing tools. > Use a single period, usually one month, and make sure all four numbers come from the same period. ## Example calculation A company with $16,000 new and expansion MRR and $8,000 churned plus contraction MRR has a ratio of 2.0. > Top half: $16,000. Bottom half: $8,000. Your quick ratio is 2.0. ## Why contraction matters Contraction MRR is quiet churn that founders often ignore, but it's as critical as churned MRR for business health. > A dollar of mrr lost to a downgrade pays the same bills as a dollar lost to a cancellation. ## Ratio misinterpretation A ratio of 2.0 means half of new MRR is replacing lost revenue, not healthy growth. > At 1, you're treading water. Between 1 and 4, you're growing, but at some cost. ## Ratio scale Below 1: shrinking; 1-4: growing with cost; 4+: healthy growth for early-stage SaaS. > Below 1, you're shrinking. More recurring revenue left than arrived, and no amount of sales activity will fix it until the leak does. ## Stage impact Seed-stage companies with small MRR can have high ratios but little meaning, while larger companies need higher ratios. > A seed-stage company with $20,000 in mrr can post a ratio of 8 in a month when it lands two customers and loses none. ## Customer type impact Businesses with monthly plans face higher churn and contraction than annual contract buyers. > Businesses selling to small companies on monthly plans tend to have more churn and contraction than those selling annual contracts to mid-market buyers. ## Ratio distortion Annual contracts cause monthly ratio spikes that misrepresent true performance. > If most of your customers renew in January, your churn and contraction land almost entirely in one month. ## How to fix low ratio Address contraction issues first, then expand MRR to improve the ratio without new sales. > Start with contraction, because it's the part you've probably been ignoring. ## Tracking ratio Track monthly with a rolling three-month average to avoid one-off distortions. > Calculate the ratio at the end of every month, record all four components next to it rather than the ratio alone. ## Investor communication Show the full formula with contraction MRR to prove honest measurement. > When an investor asks for your quick ratio, hand over the formula and the four monthly inputs along with the answer. ## Why it matters Correct ratio calculations prevent misleading investors and ensure sustainable growth. > The ratio says nothing about cost. A company can reach a quick ratio of 5 by spending $3 on sales and marketing for every $1 of new mrr it signs. ## Key takeaway Most SaaS founders miscalculate quick ratio by omitting contraction MRR, risking misleading investor perceptions.