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Magic Number Calculator

Enter quarterly revenue and prior-quarter sales and marketing spend to measure sales efficiency.

How it is calculated

The magic number relates the growth in quarterly revenue to what was spent on sales and marketing the quarter before. annualized new revenue = (current quarter revenue − previous quarter revenue) × 4 and magic number = annualized new revenue ÷ prior-quarter sales and marketing spend. All three inputs are dollar amounts for a whole quarter. The factor 4 turns the quarterly gain into a yearly run rate, so the ratio compares a yearly amount with a quarterly cost. Revenue cannot be negative and the spend must be above zero or there is no result. If revenue fell, the ratio is negative. The tool also shows the quarter-over-quarter change as a dollar amount, not as a percentage.

Worked example

A company earned 1,700,000 last quarter and 1,850,000 this quarter, having spent 720,000 on sales and marketing in the prior quarter. Quarterly gain: 1,850,000 − 1,700,000 = $150,000. Annualized: 150,000 × 4 = $600,000. Divide by the spend: 600,000 ÷ 720,000 = 0.833, shown as 0.83. This means each dollar spent on sales and marketing was followed by about 83 cents of new annualized revenue.

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Common mistakes

  • Using the spend of the current quarter. The formula uses the quarter before, since spend takes time to show up as revenue.
  • Entering the annual figures for the revenue fields. They must be revenue for one quarter, or the multiplication by 4 inflates the ratio.
  • Entering the percentage growth. The inputs are dollar amounts and the tool computes the gain itself.
  • Using bookings or cash collected instead of recognized subscription revenue, so the quarter-over-quarter change reflects timing of payments.
  • Including one-off revenue such as services or setup fees, which makes growth look higher than the recurring base really grew.

About this calculator

The SaaS magic number measures how efficiently a subscription business turns sales and marketing spend into new revenue: Magic Number = (Current Quarter Revenue - Prior Quarter Revenue) x 4, divided by Prior Quarter Sales and Marketing Spend. Annualizing the quarter-over-quarter revenue gain puts it on the same yearly basis as the spend it’s being compared to.

Venture investors and SaaS operators popularized this metric — originally attributed to Scale Venture Partners — as a quick health check on go-to-market efficiency: a magic number above 0.75 generally signals it’s worth investing more aggressively in sales and marketing, between 0.5 and 0.75 suggests efficiency needs work before scaling spend, and below 0.5 is often read as a sign to fix retention or conversion rather than pour in more budget. It’s a standard slide in SaaS board decks and fundraising materials alongside CAC payback and net revenue retention.

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