Definition

For SaaS companies, the magic number is a metric used to measure sales efficiency. It tells companies how many dollars of revenue they generate for each dollar spent on new customer acquisition using sales and marketing.

Example

To calculate the SaaS Magic number, companies need to know the revenue of the current quarter and the previous quarter along with sales/marketing spend for the previous quarter. The formula for Magic number is (revenue of current quarter - revenue of previous quarter)/sales & marketing spend of the previous quarter.

Why it matters

The magic number helps companies understand their sales and marketing efficiency. Once they know the efficiency level, they can work towards optimizing their marketing spend and minimizing the overall customer acquisition cost.Companies can also use it as an indicator if additional tools or training are required to achieve higher ROI.

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