Calculate your SaaS magic number from quarterly revenue growth and sales and marketing spend, with benchmark ratings, implied CAC payback, and target spend or growth modes.
SaaS Magic Number Formula
MN = ((Q2 - Q1) * 4) / SM1
- MN is the SaaS magic number
- Q2 is the current quarter recurring (GAAP) revenue ($)
- Q1 is the prior quarter recurring (GAAP) revenue ($)
- SM1 is the prior quarter sales and marketing spend ($)
The calculator’s default mode applies this formula directly: it annualizes your quarterly revenue growth by multiplying by 4, then divides by the sales and marketing spend from the quarter before the growth occurred. The spend is lagged one quarter because money spent on sales and marketing typically takes a quarter or more to show up as closed revenue.
The two target modes rearrange the same formula. To find the maximum spend that keeps you at a target magic number:
Max SM1 = ((Q2 - Q1) * 4) / Target MN
To find the quarterly revenue growth required to hit a target magic number on a given spend:
Required Growth = (Target MN * SM1) / 4
The advanced option adds gross margin to estimate the implied CAC payback period, which is how long it takes gross profit from new revenue to repay the acquisition spend:
CAC Payback (months) = 12 / (MN * Gross Margin)
Magic Number Benchmarks and Implied CAC Payback
The magic number answers one question: for each dollar of sales and marketing spend, how much annualized recurring revenue growth did you get back? The benchmarks below are the ranges investors most commonly apply, originally popularized by Scale Venture Partners.
| Magic Number | Rating | Typical action |
|---|---|---|
| Below 0.5 | Inefficient | Pause spend increases; fix targeting, pricing, funnel conversion, or churn first |
| 0.5 to 0.75 | Below benchmark | Hold spend roughly flat; improve channel mix and sales conversion before scaling |
| 0.75 to 1.0 | Efficient | Healthy growth; optimize while cautiously increasing investment |
| Above 1.0 | Very efficient | Scale sales and marketing spend; you may be underinvesting in growth |
Because a magic number of 1.0 means the prior quarter’s spend is repaid by one year of incremental revenue, you can translate any magic number into an implied CAC payback period once you account for gross margin. The table below shows implied payback in months at common SaaS gross margins. Most investors want SaaS payback under 18 months, which explains why 0.75 is treated as the minimum efficient bar.
| Magic Number | 70% margin | 80% margin | 90% margin |
|---|---|---|---|
| 0.5 | 34.3 months | 30.0 months | 26.7 months |
| 0.75 | 22.9 months | 20.0 months | 17.8 months |
| 1.0 | 17.1 months | 15.0 months | 13.3 months |
| 1.5 | 11.4 months | 10.0 months | 8.9 months |
Example Problems
Example 1: A SaaS company reports $200,000 of recurring revenue in Q1 and $225,000 in Q2, and it spent $125,000 on sales and marketing in Q1. Quarterly growth is $25,000, which annualizes to $100,000. Dividing by the $125,000 spend gives a magic number of 0.8, which lands in the efficient range. Adding an 80% gross margin in the advanced option, the implied CAC payback is 12 / (0.8 * 0.8) = 18.8 months.
Example 2: A company is growing revenue by $50,000 per quarter and wants to know the most it can spend on sales and marketing while keeping a magic number of at least 1.0. Using the max spend mode: ($50,000 * 4) / 1.0 = $200,000 per quarter. Spending above that level at the same growth rate would push the magic number below 1.0.
FAQ
Why is revenue growth multiplied by 4 and compared to the prior quarter’s spend?
Multiplying quarterly growth by 4 converts it to an annualized run rate, which reflects that subscription revenue recurs: a dollar of new quarterly revenue is worth roughly four dollars over the next year. The spend is taken from the prior quarter because sales and marketing investment leads revenue; deals closed this quarter were mostly generated by last quarter’s spend. Using same-quarter spend would understate efficiency for growing budgets.
Should I use GAAP revenue or net new ARR in the formula?
The original Scale Venture Partners version uses GAAP revenue because it is the only figure reliably available for public companies, which makes benchmarking possible. If you have internal data, you can substitute net new ARR (new ARR plus expansion minus churn and downgrades) in the numerator; that variant is usually called net sales efficiency and gives a cleaner read because it strips out non-recurring revenue. Whichever you choose, use it consistently from quarter to quarter.
Is a very high magic number always good?
Not necessarily. A magic number well above 1.5 suggests demand is outrunning your sales and marketing investment, which usually means you are underinvesting and leaving growth on the table. It can also be inflated temporarily by a large one-time deal, a price increase, or seasonally strong bookings. Check the number over several quarters, and pair it with churn, gross margin, and CAC payback before changing budgets.
