![the magic number the magic number](https://www.somkiat.cc/wp-content/uploads/2015/01/magic-number.jpg)
![the magic number the magic number](https://identify-digital.ams3.cdn.digitaloceanspaces.com/glasstimes/wp-content/uploads/2017/03/marketing-mcinnes-3.jpeg)
For SaaS companies, revenue growth, instead of profits, has mainly been focused on during the early stages of a company. Profit is the money leftover after subtracting your costs to run the business from your revenue. RevenueĪnother pitfall of the magic number is its focus on revenue with no consideration for profit. Keeping track of where your revenue is coming from (new subscriptions or upsells) can help you better evaluate your business and its sales and marketing channels.įor further reading, check out Scale’s take on the simplicity of the magic number when isolated from other metrics. The magic number formula uses revenue, but it does not differentiate between new revenue generated from new users or revenue generated from up-sells from existing users. The magic number only implies a payback period because this period can be confounded by other metrics such as gross margins, making the payback period shorter or longer.
#The magic number driver#
Gross margin is another key driver of your company’s profitability. The magic number only covers the sales and marketing expenses, not COGS (cost of goods sold). The more users and revenue you lose the more you will need to spend on sales & marketing to replace those users and grow. Keeping track of logo and revenue churn is directly related to the future profitability of the company since it considers both revenue and users lost. This ratio not only measures the effectiveness of the sales and marketing spend, but also considers the impact of churn which helps measures the effectiveness of the customer success team. Incorporating other SaaS metrics can give a holistic view on a company’s performance. While the magic number can be effective in showing the health of a business, it is important to remember that the magic number is a sales efficiency metric and it does not fully describe a company’s health.