SaaS magic number

Q: What is a good SaaS magic number?

Above 0.75 is efficient and a signal to invest more in growth, and above 1.0 means you should strongly scale spending up. Between 0.5 and 0.75 is acceptable, while below 0.5 is inefficient — your sales and marketing isn't returning enough new revenue to justify pouring in more.

Q: How is the SaaS magic number calculated?

Take the increase in recurring revenue from the prior quarter to the current quarter, multiply it by four to annualise it, then divide by the prior quarter's sales and marketing spend. The lag matters: this quarter's revenue is credited to last quarter's spend, since acquisition takes time to convert.

Q: Why use the prior quarter's spend?

Because sales and marketing spend doesn't pay off instantly — the leads it generates take weeks or months to close. Crediting this quarter's new revenue to last quarter's spend lines up cause and effect, giving a fairer read on how efficiently each euro converts into recurring revenue.

A one-number read on go-to-market efficiency: how much new annual recurring revenue each euro of sales & marketing buys. Above 0.75 and you should be spending more.

In plain English

The magic number answers a board-level question: if we put another euro into sales and marketing, how much new recurring revenue do we get back? It compares the jump in recurring revenue over a quarter — annualised — against the spend that drove it. A result above 0.75 means your go-to-market engine is efficient enough that pouring in more fuel is worth it; below 0.5 means you're spending hard for too little return and should fix conversion before scaling. It's a fast sanity check on whether growth is being bought cheaply or expensively.

The formula

Magic number = (Current-quarter recurring revenue − Prior-quarter recurring revenue) × 4 ÷ Prior-quarter S&M spend

The ×4 annualises the quarterly revenue gain, and using the prior quarter's spend reflects the lag between paying for acquisition and seeing the revenue land.

A worked example

Recurring revenue rose from €2.2M last quarter to €2.5M this quarter, and last quarter you spent €1.0M on sales & marketing.

Magic number = (€2.5M − €2.2M) × 4 ÷ €1.0M = 1.2

A score of 1.2 is strong: every euro of spend is returning more than a euro of new annual recurring revenue. That's a clear green light to scale acquisition up rather than hold back.

What's a good SaaS magic number?

The thresholds are widely used across SaaS finance teams:

Magic number	Verdict	What to do
> 1.0	Excellent	Strongly scale spending up
> 0.75	Efficient	Invest more in growth
0.5–0.75	Acceptable	Hold and improve conversion
< 0.5	Inefficient	Fix the funnel before scaling

A low magic number usually means budget is going to the wrong leads. Feeding deal value back into your ad platforms — so spend chases customers who actually convert and stay — is one of the most direct ways to push the number up. It's the spend-side cousin of CAC payback.

Frequently asked questions

What is a good SaaS magic number?

Above 0.75 is efficient and a signal to invest more in growth, and above 1.0 means you should strongly scale spending up. Between 0.5 and 0.75 is acceptable, while below 0.5 is inefficient — your sales and marketing isn't returning enough new revenue to justify pouring in more.

How is the SaaS magic number calculated?

Take the increase in recurring revenue from the prior quarter to the current quarter, multiply it by four to annualise it, then divide by the prior quarter's sales and marketing spend. The lag matters: this quarter's revenue is credited to last quarter's spend, since acquisition takes time to convert.

Why use the prior quarter's spend?

Because sales and marketing spend doesn't pay off instantly — the leads it generates take weeks or months to close. Crediting this quarter's new revenue to last quarter's spend lines up cause and effect, giving a fairer read on how efficiently each euro converts into recurring revenue.

CAC · CAC payback period · Burn multiple · Rule of 40

Learn more

The complete guide to value-based bidding · Value-based bidding without a data team