How much new and expansion revenue do we generate per dollar of churn?
№ 016 · Quick ratio
Definition
Metric(New MRR + expansion MRR) / (churned MRR + contraction MRR)
Unitx (dollars gained per dollar lost)
(New MRR + Expansion MRR) divided by (Churn MRR + Contraction MRR). Above 4 means strong growth, below 1 means shrinking. Plot monthly from MRR breakdown totals. Example: $42K new + $18K expansion = $60K growth; $19K churn + $8K contraction = $27K shrink; ratio 2.2x.
- MRR
- Monthly recurring revenue. Sum of every active subscription normalised to a monthly value, excluding one-off fees.
Benchmarks
| Bottom 30% | Median | Top 30% |
|---|---|---|
| Under 1.5x; below 1.0x the recurring base is shrinking | Industry aggregate ~1.8-2.5x; ChartMogul-derived industry ratio was ~2.55 at the Sep 2021 peak and ~1.82 by Mar 2024 | 4.0x+ (the Hamid investment bar) |
Private SaaS, monthly or quarterly MRR movements, all ARR bands, 2021-2024 billing data; the 4x bar dates to 2015 and a more new-logo-driven era · The 4x threshold is a heuristic, not a survey percentile; scaled companies at 2.5-3.5x with strong GRR and expansion are often healthier than early-stage companies above 4x on a tiny base. Compute on consistent period inputs; mixing monthly and annual figures is the most common calculation error.
Category split omitted: No two independent Tier 1-2 sources publish quick-ratio distributions by segment, stage or ACV.
When it looks bad
The ratio decays across periods while headline net new MRR holds roughly steady, meaning growth is being maintained by pushing more in the top of a bucket that leaks faster each month.
Q1: +$120k gained / $30k lost = 4.0. Q4: +$150k gained / $75k lost = 2.0. Net new MRR looks similar ($90k vs $75k) but the cost of standing still doubled.
What to do about it
- Fix the denominator first: reducing churned plus contraction MRR is cheaper than inflating gains, and every dollar saved there also compounds into NRR and payback; start with the involuntary share (20-40% of churn per ProfitWell data, recoverable at ~70% with optimized dunning per Recurly).
- Decompose the numerator: a ratio propped up by new logos while expansion shrinks signals a product or CS problem wearing a growth costume; track new and expansion separately against losses.
- Report quarterly, summing the three months' inputs before dividing; averaging monthly ratios injects seasonality noise and misleads the board.
- Anchor targets to stage: hold 4+ pre-$5M ARR as evidence of pull; accept 2.5-3.5 at scale only if GRR is 90%+ so the lower ratio reflects a large base, not a leak.
Sources
- ChartMogul 4+ efficient growth; 2-4 average, sustainability unclear; below 2 churn is consuming new business chartmogul.com ↗
- The Founder's Corner (reporting ChartMogul industry data) Industry quick ratio ~2.55 (Sep 2021) declining to ~1.82 (Mar 2024); stage bands: below 1 structural, 1-2 losing slowly, 2-4 healthy the-founders-corner.com ↗
- Tomasz Tunguz (Theory Ventures) Quick ratio = (growth + churn) / churn; a 4x ratio can hide 5% monthly churn at high growth, so read alongside the underlying churn rate tomtunguz.com ↗
- Chargebee Hamid's original hypothesis: quick ratio of 4+ marks a company worth investing in; same net new MRR can hide very different efficiency chargebee.com ↗
- SaaSCEO Stage-dependent: early companies clear 4 on a small base; scaled companies at 2.5-3.5 with low churn are often healthier saasceo.com ↗