Magic Number
Industry:
SaaS
Growth
Efficiency
Back to Metric-dictionary
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
Efficiency snapshot: Turns S&M spend into growth, fast.
Quality of growth: Flags “buying growth” vs. real pull.
Comparable: Simple ratio you can track across time and segments.
Why it matters for Investors
Efficiency snapshot: Turns S&M spend into growth, fast.
Quality of growth: Flags “buying growth” vs. real pull.
Comparable: Simple ratio you can track across time and segments.
Why it matters for Investors
Efficiency snapshot: Turns S&M spend into growth, fast.
Quality of growth: Flags “buying growth” vs. real pull.
Comparable: Simple ratio you can track across time and segments.
Formula
Use one policy and stick to it.
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations -
Time-lag: Use Q−1 S&M in the denominator.
Apples-to-apples: Use subscription/recurring revenue only; exclude one-time items.
Long cycles: If deals take 2+ quarters, use a 2-quarter lag or rolling 2–4Q average.
Segment it: New-logo vs expansion; SMB vs enterprise; channels/regions.
Pair with margin: Low gross margin can make a high Magic Number less attractive.
Formula
Use one policy and stick to it.
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations -
Time-lag: Use Q−1 S&M in the denominator.
Apples-to-apples: Use subscription/recurring revenue only; exclude one-time items.
Long cycles: If deals take 2+ quarters, use a 2-quarter lag or rolling 2–4Q average.
Segment it: New-logo vs expansion; SMB vs enterprise; channels/regions.
Pair with margin: Low gross margin can make a high Magic Number less attractive.
Formula
Use one policy and stick to it.
Revenue-based (Classic):
ARR-Based (No Annualizing)
Practical considerations -
Time-lag: Use Q−1 S&M in the denominator.
Apples-to-apples: Use subscription/recurring revenue only; exclude one-time items.
Long cycles: If deals take 2+ quarters, use a 2-quarter lag or rolling 2–4Q average.
Segment it: New-logo vs expansion; SMB vs enterprise; channels/regions.
Pair with margin: Low gross margin can make a high Magic Number less attractive.
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
Rule of thumb: <0.5 weak, ~0.5–0.75 needs work, ~0.75–1.0 good, >1.0 strong (validate with retention and margins).
If negative growth: Report N/M (not meaningful) and explain drivers.
Keep consistent: Same revenue definition, same S&M scope every time.
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
Rule of thumb: <0.5 weak, ~0.5–0.75 needs work, ~0.75–1.0 good, >1.0 strong (validate with retention and margins).
If negative growth: Report N/M (not meaningful) and explain drivers.
Keep consistent: Same revenue definition, same S&M scope every time.
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
Rule of thumb: <0.5 weak, ~0.5–0.75 needs work, ~0.75–1.0 good, >1.0 strong (validate with retention and margins).
If negative growth: Report N/M (not meaningful) and explain drivers.
Keep consistent: Same revenue definition, same S&M scope every time.
Best Practices
Lock the definition: Choose revenue-based or ARR-based; document inclusions/exclusions.
Smooth volatility: Show current quarter and rolling 4Q.
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.
Smooth volatility: Show current quarter and rolling 4Q.
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.
Smooth volatility: Show current quarter and rolling 4Q.
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
Is higher always better?
Not if it comes with heavy discounting or high churn. Check NDR/GRR and margins.ARR or revenue?
Both are used. ARR-based skips the ×4 step. Pick one method and stick with it.Include brand marketing in S&M?
Yes—if it’s in S&M normally. Consistency matters more than the exact boundary.What if sales cycles are long?
Shift the denominator back two quarters or use rolling averages.How is this different from CAC Payback?
Magic Number = growth per $ of prior S&M. CAC Payback = months to recover CAC from gross profit.
FAQs
Is higher always better?
Not if it comes with heavy discounting or high churn. Check NDR/GRR and margins.ARR or revenue?
Both are used. ARR-based skips the ×4 step. Pick one method and stick with it.Include brand marketing in S&M?
Yes—if it’s in S&M normally. Consistency matters more than the exact boundary.What if sales cycles are long?
Shift the denominator back two quarters or use rolling averages.How is this different from CAC Payback?
Magic Number = growth per $ of prior S&M. CAC Payback = months to recover CAC from gross profit.
FAQs
Is higher always better?
Not if it comes with heavy discounting or high churn. Check NDR/GRR and margins.ARR or revenue?
Both are used. ARR-based skips the ×4 step. Pick one method and stick with it.Include brand marketing in S&M?
Yes—if it’s in S&M normally. Consistency matters more than the exact boundary.What if sales cycles are long?
Shift the denominator back two quarters or use rolling averages.How is this different from CAC Payback?
Magic Number = growth per $ of prior S&M. CAC Payback = months to recover CAC from gross profit.
Related Metrics
CAC, CAC Payback (Months), Net New ARR, Gross Margin (%), Burn Multiple, NDR/GRR, Rule of 40
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
CAC, CAC Payback (Months), Net New ARR, Gross Margin (%), Burn Multiple, NDR/GRR, Rule of 40
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
CAC, CAC Payback (Months), Net New ARR, Gross Margin (%), Burn Multiple, NDR/GRR, Rule of 40
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.
Back to Metric-dictionary
Index