SaaS Magic Number

The SaaS Magic Number is a widely used metric by venture capitalists to determine if a company is ready to scale. It measures the efficiency of your Sales & Marketing (S&M) spend.

The Formula

The Magic Number takes the growth in revenue from one quarter to the next, annualizes it (x4), and divides it by the marketing spend that generated it.

Magic Number = ((Current Q Revenue - Previous Q Revenue) * 4) / Previous Q S&M Spend

Note: The "x4" annualizes the quarterly growth.

Interpreting Your Score

The simulator places you in one of three zones:

Magic Number < 0.5 (Fix It):

You are spending too much to acquire too little revenue.
Action: Do not increase spend. Fix your churn or sales process first.

Magic Number 0.5 - 0.75 (Optimize):

You are growing, but efficiency could be better.
Action: Evaluate your lowest-performing channels.

Magic Number > 0.75 (Scale):

Your machine is working efficiently.
Action: Pour fuel on the fire. You have permission to increase the budget.

💡 Pro Tip

Lag Time: Marketing spend today doesn't always result in revenue tomorrow. You can adjust the "Sales Cycle Offset" in the simulator (e.g., 3 months) to match spend with the actual booking date.

The SaaS Magic Number is a widely used metric by venture capitalists to determine if a company is ready to scale. It measures the efficiency of your Sales & Marketing (S&M) spend.

The Formula

The Magic Number takes the growth in revenue from one quarter to the next, annualizes it (x4), and divides it by the marketing spend that generated it.

Magic Number = ((Current Q Revenue - Previous Q Revenue) * 4) / Previous Q S&M Spend

Note: The "x4" annualizes the quarterly growth.

Interpreting Your Score

The simulator places you in one of three zones:

Magic Number < 0.5 (Fix It):

You are spending too much to acquire too little revenue.
Action: Do not increase spend. Fix your churn or sales process first.

Magic Number 0.5 - 0.75 (Optimize):

You are growing, but efficiency could be better.
Action: Evaluate your lowest-performing channels.

Magic Number > 0.75 (Scale):

Your machine is working efficiently.
Action: Pour fuel on the fire. You have permission to increase the budget.

💡 Pro Tip

Lag Time: Marketing spend today doesn't always result in revenue tomorrow. You can adjust the "Sales Cycle Offset" in the simulator (e.g., 3 months) to match spend with the actual booking date.

Growth Engine

SaaS Magic Number

The Formula

Interpreting Your Score

💡 Pro Tip

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Growth Engine

SaaS Magic Number

The Formula

Interpreting Your Score

💡 Pro Tip

Was this article helpful?