SaaS magic number calculator
SaaS magic number calculator
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How it is calculated
Magic number = (this quarter’s subscription revenue − last quarter’s) × 4 ÷ last quarter’s sales and marketing spend
This is how Scale Venture Partners, who popularised the name, describe it: annualise the change in subscription revenue between two quarters and divide by the sales and marketing spend of the earlier quarter. The one-quarter lag reflects that spend takes time to turn into revenue.
Worked example
Q2 subscription revenue is 150,000 and Q3 is 165,000. The change is 15,000, annualised 60,000 of new ARR. Q2 sales and marketing spend was 80,000.
60,000 ÷ 80,000 = 0.75. Each euro spent on sales and marketing in Q2 produced 0.75 of new annual recurring revenue.
How to read your result
The 0.5 and 1.0 cut-offs are Scale Venture Partners’ readings of the metric, as described in the sources below. They are not Mazo statistics.
| Range | Reading | What it means |
|---|---|---|
| 0 or below | No net growth | Check churn before anything else. |
| 0 to 0.5 | Fix the model first | Scale: a company that has not yet figured out its model. |
| 0.5 to 1.0 | Viable, not efficient | Improve conversion before scaling spend. |
| 1.0 and over | Invest more | Scale and Tom Tunguz both treat 1.0 as the cut-off. |
How to improve it
Check churn before blaming sales
The metric uses net revenue growth, so churn directly lowers it. A magic number of 0.4 with 15% quarterly churn is a retention problem, not a go-to-market one.
Cut spend that has no pipeline attached
Programmes that cannot name the deals they created inflate the denominator. Stop the channel you cannot connect to a closed customer.
Price up, not just more volume
A higher average contract value raises new ARR per deal for the same spend. It is the cheapest way to improve the ratio.
Use a longer window for lumpy deals
One large enterprise deal can swing a single quarter. Average two or three quarters when contracts are big and few.
Common mistakes
Using the same quarter’s spend
The standard calculation uses the earlier quarter, because spend takes time to convert into revenue. The same quarter flatters a company that is ramping spend.
Including services revenue
Only recurring subscription revenue belongs here. One-off implementation fees will make the number look better than the subscription engine really is.
Reading it before you have a repeatable motion
With a handful of deals a quarter the metric is mostly noise. Treat it as a trend, not a verdict.
FAQ
What is a good SaaS magic number?
Why does the magic number use last quarter’s spend?
Does the magic number account for churn and gross margin?
When should a startup start tracking it?
Spend where it works
Mazo shows which channel earns its spend and which to stop, then runs the weekly plan around it. €99 a month, 14 days free.
Start 14-day free trial See all free tools →Written by Madalena Rugeroni, founder of Mazo · Updated 10 November 2026. Benchmarks are credited to whoever published them; where a band is Mazo's own it is labelled as a working threshold. Results are a starting point, not financial advice. Mazo is not affiliated with or endorsed by the sources below.