Magic Number
CRM & RetentionAlso: SaaS Magic Number · Sales Efficiency Magic Number
Quick definition
The Magic Number is a SaaS efficiency ratio that shows how much new recurring revenue a business generates for every dollar spent on sales and marketing in the prior quarter. It's used to judge whether it's time to invest more in growth or fix the engine first.
A result above roughly 0.75 generally supports increasing growth spend. Below 0.5 usually means the engine needs fixing before it gets more fuel. Judge the trend across quarters, not one result alone.
How it varies across Australia
Australian SaaS businesses tend to report Magic Numbers on the lower end of the global range, largely due to smaller total addressable market and longer enterprise sales cycles outside the biggest cities. A single strong quarter rarely changes the underlying picture. Trend across several quarters matters more than any one result.
See growth efficiency benchmarks across Australian industries →What it actually means
Imagine you're deciding whether to pour more fuel into an engine or check whether the engine is even running properly first. That's what the Magic Number is for. It answers a single question: for every dollar of sales and marketing spend last quarter, how many dollars of new annual recurring revenue (ARR) did it produce this quarter?
The metric assumes a lag. Money spent on sales and marketing this period generally produces revenue next period, not immediately. That's why the formula multiplies this quarter's new recurring revenue by four and divides by last quarter's spend. It annualises the return and lines it up against the investment that actually caused it.
A result above roughly 0.75 usually means the growth engine is efficient enough to justify pouring in more budget. A result below 0.5 is a signal to pause and diagnose, not to spend harder. This connects directly to CAC and lifetime value (LTV). A business can have a healthy Magic Number and a broken CAC-to-LTV ratio at the same time if churn is quietly eating the base. The Magic Number tells you about growth efficiency. It says nothing about retention or margin on its own.
The Magic Number doesn't tell you if you're growing. It tells you if the money you're spending to grow is actually working.
How to calculate it
Magic Number = (This quarter's new recurring revenue x 4) ÷ Last quarter's sales and marketing spend
Worked example. New recurring revenue this quarter is $150,000. Sales and marketing spend last quarter was $600,000. Magic Number = ($150,000 x 4) ÷ $600,000 = $600,000 ÷ $600,000 = 1.0. A result of 1.0 sits in the healthy range and generally supports increasing investment.
The Australian context
Australian software as a service (SaaS) businesses often run a lower Magic Number than United States peers simply because the local market is smaller and enterprise deals take longer to close outside Sydney and Melbourne. A business expanding into the United States or United Kingdom from an Australian base may see its Magic Number drop temporarily as it absorbs the cost of building a new pipeline in an unfamiliar market before the new recurring revenue catches up.
Where people get this wrong
Related terms
Common questions
What is a good Magic Number for a SaaS business?
A result around 0.75 to 1 is generally considered healthy and supports increasing growth investment. Below 0.5 usually signals the sales and marketing engine needs fixing before more budget is added. Above 1.5 can mean the business is under-investing in growth relative to demand.
How is Magic Number different from CAC payback period?
Magic Number looks at total new recurring revenue against total prior spend as a ratio. CAC payback period asks how many months it takes to recover the cost of acquiring one customer. Both measure efficiency but from different angles, and businesses often track both together.
Why does the formula use last quarter's spend, not this quarter's?
Sales and marketing spend typically takes a quarter to convert into signed recurring revenue. Comparing this quarter's revenue to last quarter's spend accounts for that lag and produces a more honest efficiency read than comparing spend and revenue from the same period.
Can Magic Number apply to non-SaaS businesses?
The formula was built for subscription and recurring revenue businesses, so it applies most cleanly there. Non-recurring revenue businesses can adapt the logic using new gross profit instead of new recurring revenue, but the original benchmarks won't transfer directly.
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About New Rebellion
New Rebellion is a marketing intelligence consultancy. We build tools, score Australian businesses on how their marketing actually performs, and publish Debrief every day. This dictionary is part of how we work in the open.
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