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Magic Number

Definition

Magic Number measures sales and marketing efficiency. Shows how much revenue growth you get per dollar spent on sales and marketing.

Extended Definition

Formula: Magic Number = (Quarterly ARR Growth x 4) / Previous Quarter Sales & Marketing Spend. Example: grew ARR by $100k this quarter, spent $200k on S&M last quarter. Magic Number = ($100k x 4) / $200k = 2.0. Above 1.0 is good (efficient growth). Above 0.75 is acceptable. Below 0.75 means burning too much on inefficient customer acquisition.

Related Terms

CAC (Customer Acquisition Cost)

CAC is how much it costs to acquire one paying customer. Calculate it by dividing total sales and marketing spend by the number of new customers acquired in that period.

LTV (Lifetime Value)

LTV is the total revenue you expect from a customer over their entire relationship with your business. It's the north star for determining how much you can afford to spend on acquisition.

Payback Period

Payback period is how long it takes to recover the cost of acquiring a customer (CAC). Calculated as CAC divided by monthly profit per customer.

Unit Economics

Unit economics measures profitability per customer. It's the revenue one customer generates (LTV) minus the cost to acquire and serve them (CAC + COGS). Positive unit economics = you make money on each customer.