Match a growth signal with the spending that preceded it.
The Magic Number scales the change in quarterly recognized revenue to an annual equivalent and compares it with the previous quarter’s sales and marketing expense. The lag is intended to reflect the delay between spending and revenue.
This convention uses quarterly revenue, not ARR. Applying the four-times multiplier to an ARR change would overstate the measure. Long sales cycles, seasonality, gross margins and revenue recognition can all weaken the implied connection.
The formula, made clear.
- Recognized revenue
- Revenue earned in each quarter under a consistent accounting policy.
- Prior-quarter S&M
- Expense in the earlier quarter; not lifetime acquisition spend.
Put the numbers in context.
Quarterly revenue rises from $1,000,000.00 to $1,200,000.00 after $500,000.00 prior-quarter sales and marketing expense. The Magic Number is 1.6×.
| Input | Example value |
|---|---|
| Current-quarter recognized revenue | $1,200,000.00 |
| Previous-quarter recognized revenue | $1,000,000.00 |
| Previous-quarter sales & marketing | $500,000.00 |
| SaaS Magic Number | 1.6× |
What this calculation assumes
Scale Venture Partners quarterly recognized-revenue convention. No gross-margin adjustment. Zero prior spend is undefined; negative revenue growth produces a negative result.
Methodology references
What to consider next.
Pair this revenue-efficiency proxy with gross-margin-adjusted CAC payback and cohort retention.
How we approach financial models →