Post by account_disabled on Mar 4, 2024 6:40:45 GMT -5
We recommend that early-stage growth companies use the magic number as their primary sales effectiveness metric. Because it's based on GAAP, it's easy to track and allows for benchmarking between companies - so you can compare your performance to your competitors. What is a "good" magic number? In our Scale Studio dataset of over 1,000 enterprise SaaS companies with ARR ranging from $0 to over $100 million, the long-term median magic number is 0.7. It keeps rising and falling in the short term, but returns to a level of 0.7 in the long term. It's, well, amazing. Reference Benchmark: Magic Number SaaS Sales Effectiveness Metric The magic number of 0.7 means that sales and marketing generate $0.70 in recurring revenue for every $1 invested in these businesses. SaaS may not be a perpetual motion machine, but it's a solid ROI. Of course, 0.7 is a good reference point to keep in mind when you're tracking your startup's sales productivity. Whenever you measure the GAAP-based magic number, you can always compare the latest results to the long-term median of 0.7 or to individual magic number levels by performance grade.
As with all SaaS metrics, it’s helpful to understand the nuances of the Magic Number (or its ARR-based cousin, Net Sales Effectiveness), which we’ve packaged in the following series: A Primer on Sales Effectiveness The History of the Magic Number The Magic Number Ripple Effect for SaaS The Glory Years: Balancing Growth and Sales Effectiveness From $0 to $1M: The Magic Number Dale Zhang Paraguay Mobile Number List September 14, 2021 Share on Twitter Share on Facebook Share on LinkedIn Share via Email First-time founders find themselves running A rapidly growing SaaS software company often falls into a certain knowledge gap: countless SaaS performance metrics and countless opinions on what matters most. Metrics that can be used to track sales effectiveness are no different. Therefore, we thought we'd share the efficiency metrics we use when analyzing potential investments and advising on the growth of our portfolio companies. It's called the magic number. First, the basics: Recurring revenue business models allow for all kinds of useful tracking and measurement. Sales productivity metrics track business activity related to winning new customers. The Magic Number is a sales productivity metric based on GAAP revenue that allows comparisons between companies (which other sales productivity metrics do not).
Track the amount of new revenue generated for every dollar invested in sales and promotions. Starting with your first revenue, you'll need data on how well your business is attracting customers. How much growth have your investments in sales and marketing resulted in? We prefer using the magic number for this metric because (1) it tells you exactly this and (2) allows for benchmarking across companies. This means you can use tools like Scale Studio to see how your sales activity compares to other startups with similar revenue levels. This will tell you whether you should step up your game and put more money into S&M. Magic Number Formula: Magic Number Sales Productivity SaaS Metric Formula - Scale Venture Partners Basically, you calculate annualized new revenue (GAAP) as a percentage of sales and marketing expenses for the previous quarter. One assumption here is that spending in the previous quarter affects sales growth in the next quarter. As you accumulate more and more quarters of magic number data, you'll give yourself a quantitative basis to evaluate all the processes and people working to attract new customers. For further reading, check out Scale’s series of articles on sales productivity: A Primer on Sales Productivity The History of the Magic Number The Magic Number Chain Reaction The Glory Days of SaaS: Balancing Growth and Sales Productivity.
As with all SaaS metrics, it’s helpful to understand the nuances of the Magic Number (or its ARR-based cousin, Net Sales Effectiveness), which we’ve packaged in the following series: A Primer on Sales Effectiveness The History of the Magic Number The Magic Number Ripple Effect for SaaS The Glory Years: Balancing Growth and Sales Effectiveness From $0 to $1M: The Magic Number Dale Zhang Paraguay Mobile Number List September 14, 2021 Share on Twitter Share on Facebook Share on LinkedIn Share via Email First-time founders find themselves running A rapidly growing SaaS software company often falls into a certain knowledge gap: countless SaaS performance metrics and countless opinions on what matters most. Metrics that can be used to track sales effectiveness are no different. Therefore, we thought we'd share the efficiency metrics we use when analyzing potential investments and advising on the growth of our portfolio companies. It's called the magic number. First, the basics: Recurring revenue business models allow for all kinds of useful tracking and measurement. Sales productivity metrics track business activity related to winning new customers. The Magic Number is a sales productivity metric based on GAAP revenue that allows comparisons between companies (which other sales productivity metrics do not).
Track the amount of new revenue generated for every dollar invested in sales and promotions. Starting with your first revenue, you'll need data on how well your business is attracting customers. How much growth have your investments in sales and marketing resulted in? We prefer using the magic number for this metric because (1) it tells you exactly this and (2) allows for benchmarking across companies. This means you can use tools like Scale Studio to see how your sales activity compares to other startups with similar revenue levels. This will tell you whether you should step up your game and put more money into S&M. Magic Number Formula: Magic Number Sales Productivity SaaS Metric Formula - Scale Venture Partners Basically, you calculate annualized new revenue (GAAP) as a percentage of sales and marketing expenses for the previous quarter. One assumption here is that spending in the previous quarter affects sales growth in the next quarter. As you accumulate more and more quarters of magic number data, you'll give yourself a quantitative basis to evaluate all the processes and people working to attract new customers. For further reading, check out Scale’s series of articles on sales productivity: A Primer on Sales Productivity The History of the Magic Number The Magic Number Chain Reaction The Glory Days of SaaS: Balancing Growth and Sales Productivity.