Distinct from CAC and CAC payback period — this measures sales and marketing efficiency at the whole-company revenue level rather than per customer.
How it works
The change in quarterly revenue, annualized (multiplied by 4), is divided by the *previous* quarter’s sales and marketing spend — not the current quarter’s, since there’s typically a lag between spending on pipeline and that spend converting into recognized revenue.
What this does not include
This uses GAAP-style revenue and spend figures for a single quarter comparison — a business with highly seasonal or lumpy revenue may see a magic number that swings significantly quarter to quarter, worth smoothing over multiple periods rather than reading any single quarter in isolation.
How to use this calculator
- Enter current and previous quarter revenue, and previous quarter sales & marketing spend.
Frequently asked questions
What’s a good SaaS magic number?
A magic number of 1.0 or above is widely accepted as an efficient sign that S&M spend is being converted into revenue growth effectively; below 1.0 suggests spend may need adjustment.
Why use the previous quarter’s S&M spend instead of the current quarter’s?
Because new pipeline investment typically takes time to convert into signed revenue — comparing current revenue growth against the spend that likely generated it (from a quarter earlier) better reflects that lag.
Does the magic number work for early-stage startups?
It can be volatile and less meaningful with very small revenue bases, where a single large deal can swing the ratio dramatically — it’s most useful once revenue reaches a more stable scale.
