SaaS Magic Number Calculator
Measure how much recurring revenue your SaaS business generates for each dollar you spend on sales and marketing.
Use this free SaaS Magic Number calculator to immediately gauge the return on your sales and marketing investments, identify whether you should increase your spending to accelerate growth, or optimize your strategies to improve revenue generation efficiency. A SaaS Magic Number above 1.0 is generally considered to be good, as it means that the company is generating more revenue than it is spending on sales and marketing.
Saas Magic Number Formula:
Saas Magic Number 🟰 Total Revenue (Current Quarter) ➖ Total Revenue (Previous Quarter) ✖️ 4 ➗ Sales & Marketing Spend (Previous Quarter)
What is the Saas Magic Number, Anyway?
The SaaS Magic Number is a sales efficiency metric that measures how much recurring revenue a SaaS company generates for each dollar it spends on sales and marketing. It is calculated by dividing the change in annual recurring revenue (ARR) by the customer acquisition cost (CAC) from the previous quarter.
Examples
Company A
- Total Revenue (Current Quarter): $100,000
- Total Revenue (Previous Quarter): $75,000
- Sales and Marketing Spend (Previous Quarter): $25,000
SaaS Magic Number = [(100,000 - 75,000) * 4] / 25,000 = 0.8
This means that for every dollar Company A spends on sales and marketing, it generates $0.80 in new recurring revenue.
Company B
- Total Revenue (Current Quarter): $200,000
- Total Revenue (Previous Quarter): $150,000
- Sales and Marketing Spend (Previous Quarter): $50,000
SaaS Magic Number = [(200,000 - 150,000) * 4] / 50,000 = 1.6
This means that for every dollar Company B spends on sales and marketing, it generates $1.60 in new recurring revenue.
Company B has a higher SaaS Magic Number than Company A. This means that Company B is more efficiently generating new recurring revenue from its sales and marketing efforts.
Why is Company B’s SaaS Magic Number higher?
There could be a few reasons for this:
- Company B may be targeting higher-value customers.
- Company B may have a more effective sales process.
- Company B may be spending less money on customer acquisition costs (CAC).
- Company B may have a higher customer lifetime value (CLTV).
How can Company A improve its SaaS Magic Number?
Company A can improve its SaaS Magic Number by:
- Targeting higher-value customers.
- Improving its sales process.
- Reducing its CAC.
- Increasing its CLTV.
Company A can also learn from Company B’s sales and marketing strategies and develop tactics to replicate them in its own business.
TL;DR: The SaaS Magic Number is a sales efficiency metric that measures how much recurring revenue a SaaS company generates for each dollar it spends on sales and marketing. It is calculated by dividing the change in annual recurring revenue (ARR) by the customer acquisition cost (CAC) from the previous quarter. SaaS companies should aim to improve their SaaS Magic Number over time. This can be done by targeting higher-value customers, improving the sales process, reducing CAC, and increasing CLV.