What is the SaaS Magic Number?
The SaaS Magic Number tells you how efficiently you’re turning your sales and marketing spending into revenue.
It answers the question: “For every dollar we spend on sales and marketing, how much new recurring revenue do we generate?”
How to Calculate the SaaS Magic Number
The Formula for SaaS Magic Number
Magic Number = (Current Quarter ARR – Previous Quarter ARR) × 4 / Previous Quarter S&M Spend
Where:
ARR = Annual Recurring Revenue
S&M = Sales and Marketing
Example Time! ✨
Let’s say:
- Current Quarter ARR = $2,000,000
- Previous Quarter ARR = $1,500,000
- Previous Quarter S&M Spend = $800,000
Calculation:
- ($2,000,000 – $1,500,000) × 4 / $800,000 = 2.5
This means each dollar spent on sales and marketing generates $2.50 in ARR!
What’s a Good SaaS Magic Number?
Let’s decode what different numbers mean! 📊
The Magic Scale:
- Less than 0.5: 😟 Time to optimize sales efficiency
- 5 to 0.75: 😐 Okay, but room for improvement
- More than 0.75: 😊 Good efficiency
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