What is the Magic Number for SaaS?
Short Answer
The Magic Number is (Revenue Growth) / (Sales & Marketing Spend), measuring how efficiently the company converts marketing investment into revenue — 0.75+ is considered strong.
Full Explanation
Magic Number = (Current Quarter Revenue − Previous Quarter Revenue) / (Prior Quarter S&M Spend). For example, if Q1 revenue was £500K and Q2 was £550K (£50K growth), and Q1 S&M spend was £100K, Magic Number = £50K / £100K = 0.5. This means every pound of marketing spend generated £0.50 in incremental quarterly revenue. A Magic Number above 0.75 is strong; above 1.0 is exceptional; below 0.5 suggests inefficient marketing. The Magic Number helps answer the question: if we increase marketing spend, what return do we get? High Magic Numbers indicate the company can sustainably increase spend to accelerate growth. Low Magic Numbers suggest marketing saturation, poor targeting, or weak product-market fit in the target segment. Magic Number varies dramatically by business model: land-and-expand SaaS might target 1.0+, because each pound spent returns recurring value over customer lifetime; transactional business might target 0.5 because revenue is one-time. The metric is useful for growth diagnostics — declining Magic Number signals market saturation or campaign efficiency collapse.
Try It Yourself
Related Questions
Viral Coefficient is the number of new users each existing user generates through referrals or sharing — values above 1.0 indicate exponential growth ...
Burn rate is monthly cash spending; runway is current cash divided by monthly burn rate, indicating how many months until capital runs out.
Product-market fit is achieved when a product satisfies strong market demand — measured by retention rates, organic growth, the Sean Ellis survey (40%...
Want to see these concepts in action?
Take the free intangible asset assessment to see how these concepts apply to your business.