Magic Number
Efficiency
Industry:
SaaS
Short Definition
Magic Number shows sales efficiency: how much new recurring revenue you created this quarter for each $1 spent on Sales & Marketing last quarter. Higher is better—up to the point it’s sustainable.
Short Definition
Magic Number shows sales efficiency: how much new recurring revenue you created this quarter for each $1 spent on Sales & Marketing last quarter. Higher is better—up to the point it’s sustainable.
Short Definition
Magic Number shows sales efficiency: how much new recurring revenue you created this quarter for each $1 spent on Sales & Marketing last quarter. Higher is better—up to the point it’s sustainable.
Why it matters for Investors
Spend → growth linkage: Connects prior S&M dollars to current recurring revenue creation.
Quality of growth: Distinguishes organic pull from discount-driven push.
Simple, comparable: Tracks consistently across time, segments, and channels.
Why it matters for Investors
Spend → growth linkage: Connects prior S&M dollars to current recurring revenue creation.
Quality of growth: Distinguishes organic pull from discount-driven push.
Simple, comparable: Tracks consistently across time, segments, and channels.
Why it matters for Investors
Spend → growth linkage: Connects prior S&M dollars to current recurring revenue creation.
Quality of growth: Distinguishes organic pull from discount-driven push.
Simple, comparable: Tracks consistently across time, segments, and channels.
Formula
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations:
Time lag: Use Q−1 S&M; for >1-quarter sales cycles consider Q−2 or a rolling 2–4Q average.
Like-for-like: Numerator should be recurring only (subscription revenue or Net New ARR). Exclude one-time services/hardware.
Scope discipline: Keep S&M definition fixed (field/inside/partner/brand; SBC stays if booked in S&M).
Segmentation: Calculate by new logo vs expansion, SMB vs enterprise, and by channel/region.
Pair with unit economics: Review with Gross Margin, Net Revenue Retention/ Gross Revenue Retention, CAC Payback, Burn Multiple.
Formula
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations:
Time lag: Use Q−1 S&M; for >1-quarter sales cycles consider Q−2 or a rolling 2–4Q average.
Like-for-like: Numerator should be recurring only (subscription revenue or Net New ARR). Exclude one-time services/hardware.
Scope discipline: Keep S&M definition fixed (field/inside/partner/brand; SBC stays if booked in S&M).
Segmentation: Calculate by new logo vs expansion, SMB vs enterprise, and by channel/region.
Pair with unit economics: Review with Gross Margin, Net Revenue Retention/ Gross Revenue Retention, CAC Payback, Burn Multiple.
Formula
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations:
Time lag: Use Q−1 S&M; for >1-quarter sales cycles consider Q−2 or a rolling 2–4Q average.
Like-for-like: Numerator should be recurring only (subscription revenue or Net New ARR). Exclude one-time services/hardware.
Scope discipline: Keep S&M definition fixed (field/inside/partner/brand; SBC stays if booked in S&M).
Segmentation: Calculate by new logo vs expansion, SMB vs enterprise, and by channel/region.
Pair with unit economics: Review with Gross Margin, Net Revenue Retention/ Gross Revenue Retention, CAC Payback, Burn Multiple.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Subscription Revenue (Q) | $7,500,000 | Current Quarter, Recurring Only |
Subscription Revenue (Q-1) | $7,250,000 | Prior Quarter, Recurring Only |
S&M Expense (Q-1) | $1,000,000 | Prior quarter total S&M |
Magic Number | 1.00 | ((7.5 − 7.25) × 4) ÷ 1.0 = 1.00 |
Notes:
Annualization: Revenue method multiplies the quarterly change by 4.
Consistency: Use the same revenue definition and same S&M scope every time.
If numerator ≤ 0: Report Not Meaningful and explain drivers (e.g., churn spike, seasonal timing).
Cycle fit: If enterprise cycles span 2+ quarters, lag S&M further or use rolling averages.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Subscription Revenue (Q) | $7,500,000 | Current Quarter, Recurring Only |
Subscription Revenue (Q-1) | $7,250,000 | Prior Quarter, Recurring Only |
S&M Expense (Q-1) | $1,000,000 | Prior quarter total S&M |
Magic Number | 1.00 | ((7.5 − 7.25) × 4) ÷ 1.0 = 1.00 |
Notes:
Annualization: Revenue method multiplies the quarterly change by 4.
Consistency: Use the same revenue definition and same S&M scope every time.
If numerator ≤ 0: Report Not Meaningful and explain drivers (e.g., churn spike, seasonal timing).
Cycle fit: If enterprise cycles span 2+ quarters, lag S&M further or use rolling averages.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Subscription Revenue (Q) | $7,500,000 | Current Quarter, Recurring Only |
Subscription Revenue (Q-1) | $7,250,000 | Prior Quarter, Recurring Only |
S&M Expense (Q-1) | $1,000,000 | Prior quarter total S&M |
Magic Number | 1.00 | ((7.5 − 7.25) × 4) ÷ 1.0 = 1.00 |
Notes:
Annualization: Revenue method multiplies the quarterly change by 4.
Consistency: Use the same revenue definition and same S&M scope every time.
If numerator ≤ 0: Report Not Meaningful and explain drivers (e.g., churn spike, seasonal timing).
Cycle fit: If enterprise cycles span 2+ quarters, lag S&M further or use rolling averages.
Best Practices
Lock the definition: Choose revenue-based or ARR-based; document inclusions/exclusions.
Publish a reconciliation. Show the revenue bridge feeding the numerator and the exact S&M lines used.
Diagnose drivers: Break the numerator into new vs expansion and check discounting.
Cross-check: View alongside CAC Payback, Gross Margin, NDR/GRR, Burn Multiple.
Best Practices
Lock the definition: Choose revenue-based or ARR-based; document inclusions/exclusions.
Publish a reconciliation. Show the revenue bridge feeding the numerator and the exact S&M lines used.
Diagnose drivers: Break the numerator into new vs expansion and check discounting.
Cross-check: View alongside CAC Payback, Gross Margin, NDR/GRR, Burn Multiple.
Best Practices
Lock the definition: Choose revenue-based or ARR-based; document inclusions/exclusions.
Publish a reconciliation. Show the revenue bridge feeding the numerator and the exact S&M lines used.
Diagnose drivers: Break the numerator into new vs expansion and check discounting.
Cross-check: View alongside CAC Payback, Gross Margin, NDR/GRR, Burn Multiple.
FAQs
What if growth is negative or flat?
If the numerator (change in revenue or ARR) ≤ 0, report Not Meaningful and explain the context (e.g., churn spike, seasonality, delayed contract activations). A negative numerator breaks the purpose of the metric — it’s meant to show positive revenue creation efficiency.Which revenue should I use — subscription, total, or ARR?
Use recurring subscription revenue or Net New ARR. Exclude one-time setup, hardware, or consulting revenue. The metric is built for subscription or recurring models. Including non-recurring income distorts efficiency since that revenue isn’t tied to future growth.Why do we use last quarter’s S&M spend?
Because revenue from deals closed this quarter usually results from pipeline and spend from the previous quarter. Sales and marketing efforts have a time lag before showing up as booked or live revenue.
FAQs
What if growth is negative or flat?
If the numerator (change in revenue or ARR) ≤ 0, report Not Meaningful and explain the context (e.g., churn spike, seasonality, delayed contract activations). A negative numerator breaks the purpose of the metric — it’s meant to show positive revenue creation efficiency.Which revenue should I use — subscription, total, or ARR?
Use recurring subscription revenue or Net New ARR. Exclude one-time setup, hardware, or consulting revenue. The metric is built for subscription or recurring models. Including non-recurring income distorts efficiency since that revenue isn’t tied to future growth.Why do we use last quarter’s S&M spend?
Because revenue from deals closed this quarter usually results from pipeline and spend from the previous quarter. Sales and marketing efforts have a time lag before showing up as booked or live revenue.
FAQs
What if growth is negative or flat?
If the numerator (change in revenue or ARR) ≤ 0, report Not Meaningful and explain the context (e.g., churn spike, seasonality, delayed contract activations). A negative numerator breaks the purpose of the metric — it’s meant to show positive revenue creation efficiency.Which revenue should I use — subscription, total, or ARR?
Use recurring subscription revenue or Net New ARR. Exclude one-time setup, hardware, or consulting revenue. The metric is built for subscription or recurring models. Including non-recurring income distorts efficiency since that revenue isn’t tied to future growth.Why do we use last quarter’s S&M spend?
Because revenue from deals closed this quarter usually results from pipeline and spend from the previous quarter. Sales and marketing efforts have a time lag before showing up as booked or live revenue.
Related Metrics
Commonly mistaken for:
CAC Payback (Time-based recovery metric (months), not a ratio)
“Sales Efficiency” variants (Some firms define other ratios—just publish your definition)
Related Metrics
Commonly mistaken for:
CAC Payback (Time-based recovery metric (months), not a ratio)
“Sales Efficiency” variants (Some firms define other ratios—just publish your definition)
Related Metrics
Commonly mistaken for:
CAC Payback (Time-based recovery metric (months), not a ratio)
“Sales Efficiency” variants (Some firms define other ratios—just publish your definition)
Components:
Index