A SaaS metric is used to measure a company’s sales efficiency using a ratio of New Subscription Revenue to Sales & Marketing (S&M) expense. Put another way; the Magic Number shows how much it costs to acquire $1.00 of subscription revenue. Any ratio above 1.0x means that your company generates more New Subscription Bookings than it spends to acquire the customer.
The most accepted formula is to use a ratio of the increase in ARR in the current period to the S&M expense in the prior period. The difference between the two periods should correspond to the length of the sale cycle. This is especially true for high growth, i.e., 3x annual ARR growth, companies. Investors expect that the Magic-Number should fall within a narrow range of around 1.0x, with any ratio above 3.0x indicating phenomenal operational leverage.
A SaaS metric is used to measure a company’s sales efficiency using a ratio of New Subscription Revenue to Sales & Marketing (S&M) expense. Put another way; the Magic Number shows how much it costs to acquire $1.00 of subscription revenue. Any ratio above 1.0x means that your company generates more New Subscription Bookings than it spends to acquire the customer. The most accepted formula is to use a ratio of the increase in ARR in the current period to the S&M expense in the prior period. The difference between the two periods should correspond to the length of the sale cycle. This is especially true for high growth, i.e., 3x annual ARR growth, companies. Investors expect that the Magic-Number should fall within a narrow range of around 1.0x, with any ratio above 3.0x indicating phenomenal operational leverage.
