# Quick Ratio

> The quick ratio compares new and expansion MRR to churn and contraction. A value of 4 or more is considered the floor for healthy growth; below that, you are filling a leaky bucket.

- Canonical URL: https://www.convios.com/en/methods/quick-ratio
- Language version: https://www.convios.com/de/methodik/quick-ratio
- Status: Externally proven
- Method library: https://www.convios.com/en/methods — Markdown: https://www.convios.com/en/methods.md

## Problem

Your gross new business looks strong, but net growth lags behind it. Growth numbers without netting out losses hide how much of every euro won immediately drains away. You need a metric that exposes growth efficiency after leaks.

## Approach

1. Track new MRR, expansion, churn and contraction separately each month.
2. Calculate the quick ratio: (new MRR + expansion) divided by (churn + contraction).
3. Read the value against the threshold: 4 or more is healthy, with top performers well above; 4 is the floor, not the goal.
4. For low values, decompose whether the leak comes from cancellations or from downgrades.
5. Prioritize retention work before investing more in acquisition.

## Example

A typical case: a fast-growing SaaS celebrates new sales records every month, yet net MRR barely grows. The quick ratio sits well below the threshold: a large share of new business merely replaces what is simultaneously lost to cancellations and downgrades. Decomposition shows one customer segment in particular shrinking shortly after contract start. The team halts the sales budget increase and first invests in onboarding and product fit for that segment.

## Limits

The quick ratio is a flow metric and says nothing about absolute size or profitability. Averaging across segments can hide opposing developments; beware of misleading aggregates. On very small MRR bases the value jumps around and is only reliable as a trend.

## Metric

Quick ratio tracked monthly or quarterly, complemented by decomposing the denominator into churn and contraction.

## Sources

- Navigating Unpredictability: Introducing the Resiliency Rubric for SaaS Companies (2023), ICONIQ Growth — ICONIQ Growth, 2023 · investment, consulting and analyst firms, industry bodies and public agencies · provides benchmark figures. Runs the metric as one of five diagnostics and gives the calculation, new logo ARR plus expansion ARR divided by downsell ARR plus churn ARR. Top-quartile companies hold a value above 4 even beyond 100 million in ARR. (https://www.iconiq.com/growth/insights/iconiq-growth-resiliency-rubric-2023)
- Diligence at Social Capital · Part 2: Accounting for Revenue Growth, Jonathan Hsu — Social Capital (veröffentlicht auf Medium), 2015 · practitioner source · describes the method. Carries the decomposition of revenue growth into new, existing, resurrected and expansion revenue, plus the diagnostic rules that a value above 4 is preferred and below 2 points to excessive churn. (https://medium.com/swlh/diligence-at-social-capital-part-2-accounting-for-revenue-growth-551fa07dd972)
- What is the Quick Ratio Hiding?, Tomasz Tunguz — tomtunguz.com, 2015 · practitioner source · limits the method. Carries the formula and target value and adds the warning that high growth rates can conceal high revenue churn in the denominator. (https://tomtunguz.com/what-is-quick-ratio-hiding/)
- Primary source: Navigating Unpredictability: Introducing the Resiliency Rubric for SaaS Companies (2023), ICONIQ Growth (https://www.iconiq.com/growth/insights/iconiq-growth-resiliency-rubric-2023)
- Adapted from: Tomasz Tunguz (Redpoint)

## Related

- Method: [Net Negative Churn (Bootstrapped)](https://www.convios.com/en/methods/net-negative-churn)
- Method: [NRR as the Number One Value Driver](https://www.convios.com/en/methods/nrr-as-value-driver)
- Method: [Churn Cohorting by Tenure](https://www.convios.com/en/methods/churn-cohorting)