Money, Pricing & Model

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

A starting point

The magic number measures how much new recurring revenue each rupee of sales and marketing generated, and it's really a sales-efficiency check that only makes sense once you have a repeatable go-to-market. At the seed stage it's usually too early, and investors asking for it may be testing whether you understand your own growth engine. As a starting point, know what these ratios mean and why they matter, but don't fake a magic number off a handful of hand-sold customers; be honest that your channel isn't proven yet.

Go deeper

Hand-picked from around the web, each with a note on why it earns your time.

2 resources 2 link-checked

Read

📄 Article
✓ Link checked Free Beginner

Why we picked it 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.

SaaS Magic Number: Formula + Calculator

From Wall Street Prep by Wall Street Prep ~10 min read

  • 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.
Open wallstreetprep.com →
✍️ Essay
✓ Link checked Free Intermediate

Why we picked it Bessemer built this from years of their own portfolio data, and it is the piece that answers the real question hiding inside "do these matter at my stage": what an efficient company looks like at $1 to 10M ARR is very different from $50M plus. It lays out stage-by-stage targets for growth rate, CAC payback, and efficiency (their magic-number cousin), so you can see whether an investor's benchmark even applies to where you are. Treat it as a reference map, not a scorecard: early on, high growth with heavier burn is normal, and the efficiency bar tightens as you scale.

Scaling to $100 Million

From Bessemer Venture Partners (Atlas) by Mary D'Onofrio, Bessemer Venture Partners long read plus benchmark charts

  • Efficiency expectations are stage-dependent: growth rates near 200 percent early fall toward 60 percent by $100M ARR, and the burn and payback bars tighten as you go, so a single "good" number does not exist across stages.
  • Bessemer targets roughly a 70 percent efficiency score around $25 to 50M ARR and about 50 percent past $100M, useful context when an investor quotes you a ratio.
  • At the earliest stage these ratios are noisy and less predictive, so use them to sanity-check unit economics, not to run the company by.
Open bvp.com →

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