SaaS Magic Number Calculator

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Illustrative calculation; verify inputs and assumptions before relying on it.

Magic Number—

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Magic Number = (Current Quarter Revenue − Prior Quarter Revenue) × 4 / Prior Quarter S&M Spend
Variable Meaning
Current Quarter Revenue Recognized revenue for the current quarter, using a consistent accounting basis.
Prior Quarter Revenue Recognized revenue for the preceding quarter on the same basis.
Prior Quarter S&M Spend Sales and marketing expense for the preceding quarter.

Worked example

Recognized revenue (this quarter)
$575,000
Recognized revenue (prior quarter)
$500,000
S&M Spend (prior quarter)
$400,000
→ Magic Number
0.75

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What SaaS Magic Number measures

Published by 4NLab · Updated · Our methods

The SaaS Magic Number measures sales efficiency by dividing annualized quarter-over-quarter recognized revenue growth by sales and marketing expense in the preceding quarter.

Prepare your inputs

  1. Take recognized revenue from two consecutive quarters using the same accounting scope.
  2. Subtract prior-quarter revenue from current-quarter revenue, then multiply the change by four to annualize it.
  3. Divide by sales and marketing expense from the prior quarter. Inspect several quarters and the length of your sales cycle before changing a budget.

Formula

Magic Number = (Current Quarter Revenue − Prior Quarter Revenue) × 4 / Prior Quarter S&M Spend
Variable Meaning
Current Quarter Revenue Recognized revenue for the current quarter, using a consistent accounting basis.
Prior Quarter Revenue Recognized revenue for the preceding quarter on the same basis.
Prior Quarter S&M Spend Sales and marketing expense for the preceding quarter.

Check the sample calculation

Worked example

Recognized revenue (this quarter)
$575,000
Recognized revenue (prior quarter)
$500,000
S&M Spend (prior quarter)
$400,000
→ Magic Number
0.75

Before using the result

  • Revenue change can be negative; a negative result signals contraction under this model rather than an efficient acquisition engine.
  • Zero prior-quarter sales and marketing expense makes the ratio undefined.
  • The calculation does not adjust for gross margin. A revenue return and a gross profit payback are different measurements.

A dash means the result is undefined for the inputs, such as division by zero. Review the assumptions and input errors before interpreting it.

Read the SaaS Magic Number guide for a business scenario, interpretation, and frequently asked questions.

Sources and methodology

The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.

Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.