Article · ~10 min read

SaaS Magic Number: Formula + Calculator

Wall Street Prep Free Beginner

This is the cleanest plain, formula-first explainer of the magic number: it gives you the exact calculation (quarter-over-quarter new revenue, annualized, divided by prior-quarter sales and marketing spend) and then tells you how to read the result. It names the working thresholds an investor actually has in mind (below 0.75 is inefficient, 0.75 to 1.0 is moderate, above 1.0 is strong) and walks a worked example, so you can compute your own number before your next meeting instead of nodding along.

  • Magic number = (this quarter's revenue minus last quarter's, times 4) divided by last quarter's sales and marketing spend, so it asks how much new annual recurring revenue each dollar of go-to-market buys.
  • Rough read: above 1.0 means spend more, you are converting efficiently; below 0.75 means fix the funnel before you pour in more budget.
  • It is a quarterly, backward-looking ratio, so one noisy quarter is not a verdict; investors watch the trend, not a single reading.
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The question it answers

  1. Investors keep asking about my "magic number" and payback efficiency. What are these and do they matter at my stage?

Read with it

  1. Bessemer built this from years of their own portfolio data, and it is the piece that answers the real question hiding inside... Bessemer Venture Partners (Atlas) Essay · long read plus benchmark charts Scaling to $100 Million Mary D'Onofrio, Bessemer Venture Partners
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