Net magic number is a measurement of go-to-market (GTM) efficiency for SaaS businesses. A magic number less than 1.0 indicates the business will lose money on each customer. Top SaaS businesses making less than $25MM in revenue per year have a magic number of 1.7 according to benchmarks from Iconiq Capital as in their business returns 1.7x for every sales and marketing dollar they spent to acquire customers.
Net magic number is calculated by taking the current quarter’s revenue less previous quarter’s revenue times 4 divided by the previous quarter’s sales and marketing spend.
By looking at the previous quarter, net magic number accounts for the average sales cycle to complete which makes it a better measurement for enterprise SaaS that has a sales motion.
See also:
- More B2B benchmarks
- Burn multiples are another way to look at efficiency including
- Revenue per employee
Links to this note
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Burn Multiples Are a Way of Managing Growth Efficiently
A burn multiple is the amount of cash burned compared to annual recurring revenue (ARR). For example, if a company burns $10MM to add $30MM ARR the burn multiple is 3.0x. Higher burn multiples are worse and imply the company will run out of money faster. This is a better measure of overall efficiency compared to LTV/CAC because it encompasses all costs (burn).