The SaaS magic number formula is crucial for your profitability.
Congrats! Why is this Magic Number Important? You’re meeting your growth targets once you’re above 0.75.Īs a broad statement, above 0.75 is good news and means your SaaS is heading in the right direction. Your CAC payback period is probably healthy, as are a fair number of other metrics. If your SaaS magic number is above 0.75, it’s likely time to consider your growth plans.
It’s not time to celebrate (yet), but once you crest this magic number, you’re heading in the right direction in your business model. Once you hit your 0.75 mark, your business is in a much better position. The general rule of thumb is that if your calculation is LESS than 0.5, something is broken in your business model, everything from your pricing to operating expenses and even your product-market fit. I’ll tell you what your number means in a minute. The current quarter’s revenue, your previous quarter’s revenue, and the previous quarter’s sales/marketing expenses.Īs per the equation above, that’s all you need to know in order to figure out your Magic Number. I’ll give some exact guidelines in a minute, but for now, you need to know the numbers I told you above. But once you do the equation, the bigger question becomes: how do you interpret what the number means? I’ve already given you ONE calculation (above) for calculating your SaaS magic number.
SAAS MAGIC NUMBER HOW TO
Let’s look in more detail: How to Calculate & Interpret your SaaS Magic Number It’s not the short-term sales cycle, it’s the lifetime value (LTV) of your SaaS magic number benchmarks.īut how can you properly calculate and interpret those metrics in a way that’s MAGIC for your business? Your SaaS magic number formula is about your sales efficiency metrics. the previous quarter’s revenue and then multiplying by 4. It’s far more than simply keeping tabs on the current quarter’s revenue vs. Previous Quarter’s Sales & Marketing Expenses How to Calculate & Interpret your SaaS Magic NumberĪs outlined above, you’ll need a solid grasp of your business metrics in order to properly measure your SaaS Magic Number. (Current Quarter’s Revenue) - (Previous Quarter’s Revenue) x4 To measure your SaaS magic number, use the following formula: These are generally the numbers you calculate to measure marketing efficiency.īut there are more nuanced metrics to measure, too. Marketing expenses (aka, marketing spend).In your SaaS business, there’s no shortage of numbers to track or SaaS metrics to measure. They’re important beyond your marketing strategy or sales team's success.īut which ones, specifically, do you track? Let’s take a look… SaaS Magic Number Formula The metrics you track matter and they help you understand the profitability of your sales and marketing. Sure, those metrics are the very definition of SaaS standard numbers so how can we associate the term SaaS magic numbers with it? Think of the SaaS Magic Number as the metric that provides a crystal-clear picture of the health of your sales metrics.įor SaaS marketing teams at early-stage subscription businesses, generating new ARR is a commendable business model and marketing strategy.īut your SaaS Magic Number is about more than retention, MRR, or even revenue growth. If you're not sure where to start, don't worry – we've got all the info you need! Keep reading to learn more. Knowing your churn rate, average customer lifetime value (LTV), and gross margin can help you figure out both your magic number and whether or not you're on track to reach it.īut your SaaS magic number is about much more than those simple metrics. There's no one answer for what the SaaS magic number is or how to calculate it, but there are a few things to keep in mind when trying to determine yours. What is The SaaS Magic Number & How Is It Calculated? Read along to learn more about how marketing teams can tackle this magic number calculation… even (perhaps “especially”) in the early stages. The SaaS magic number is an important metric to measure for both startups and established SaaS companies. In this article, we’ll take a look at how to be intentional about this vital sales efficiency metric, how it’s calculated, and why it’s important for your business success. Hitting your SaaS magical number is less about random luck and more about strategic plans.
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