What is the SaaS magic number?

Written by Madalena Rugeroni, founder of Mazo · Updated 15 September 2026

The SaaS magic number is a sales efficiency metric: the change in quarterly subscription revenue, annualised, divided by the previous quarter's sales and marketing spend. It shows how much new annual recurring revenue each euro of sales and marketing produces, and whether the go-to-market motion is ready for more investment.

Magic number formula

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 the calculation: annualise the change in subscription revenue between two quarters and divide by sales and marketing spend in the earlier quarter.¹ The one-quarter lag reflects that spend takes time to turn into revenue. Using net new ARR for the quarter gives essentially the same result.

Worked example

Q2 subscription revenue: €150,000. Q3: €165,000. Change: €15,000.
Annualised: €15,000 × 4 = €60,000 of new ARR.
Q2 sales and marketing spend: €80,000.
Magic number = €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 it

Above 1.0: Scale Venture Partners describe this as a compelling case to invest more in sales and marketing.¹ Tom Tunguz makes the same cut-off.³
0.5 to 1.0: viable but less capital-efficient.¹ Scale reports a median of roughly 0.7–0.8 across its dataset.²
Below 0.5: in Scale's words, a company that still hasn't figured out its model.¹

Because the magic number ignores churn and gross margin, read it alongside CAC payback and net revenue retention.

Why it matters from €0 to €1M ARR

Pre-revenue to €10k MRR: skip it. Spend is mostly founder time, and a single deal swings quarterly revenue.
Around €30k–€50k MRR: calculate it once you have a few quarters of steady sales and marketing spend, as a trend rather than a verdict.
Approaching €1M ARR: it's a useful check before hiring sales reps or raising paid budget.

Mazo's rule of thumb: don't calculate a magic number until you have a few quarters of steady sales and marketing spend. If it's below 0.5, fix the motion — ICP, positioning, conversion — before adding spend.

Common magic number mistakes

Forgetting to annualise. Dividing the quarterly change by spend understates efficiency four times.
Using the same quarter's spend. The formula lags spend by one quarter.
Including services revenue. Only recurring subscription revenue counts.
Reading one quarter. A big annual deal can make one quarter look brilliant.

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FAQ

What is a good SaaS magic number?

Scale Venture Partners treat above 1.0 as a strong signal to invest more in sales and marketing, 0.5 to 1.0 as viable but less efficient, and below 0.5 as a model that is not yet working.

How do you calculate the SaaS magic number?

Take the change in subscription revenue between two quarters, multiply it by four, and divide by the sales and marketing spend of the earlier quarter.

Is the magic number useful for early-stage startups?

Not much before you have steady sales and marketing spend over several quarters. Below that, one deal or founder time distorts it; CAC payback by channel is more useful.

Who wrote this

Madalena Rugeroni built Mazo. She's an ex-Googler, a startup advisor and investor, and runs a portfolio of internet companies. Before that, as Head of Growth at Amplemarket, she scaled a B2B SaaS to $10M ARR. LinkedIn

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Sources.

Formula and the 1.0 / 0.5 thresholds: Scale Venture Partners, "Magic Number Math" (2010)
Median of roughly 0.7–0.8x: Scale Venture Partners, "Four Vital Signs of SaaS" (2019)
Above 1, invest more in sales and marketing: Tomasz Tunguz, "Sales Efficiency Benchmarks for SaaS Startups" (2013)