SaaS Magic Number Calculator — Leckie's 2008 Formula

Background.

From the outside, a public software company shows two numbers each quarter that matter for growth: the recurring revenue it recognised and what it spent on sales and marketing. The SaaS magic number joins them. Take the rise in quarterly recurring revenue, multiply it by four to make it an annual figure, and divide by the previous quarter's sales and marketing expense. A result of 1.0 means each dollar of selling effort added a dollar of annualised revenue.

The formula used here is the one Lars Leckie of Hummer Winblad set out on 4 March 2008 in a guest post on Will Price's blog, along with the thresholds still quoted: below 0.75, "step back and look at your business"; above it, the business is "primed to leverage spend into growth"; above 1.5, "call me immediately". Scale Venture Partners, where Rory O'Driscoll coined the term after finding that Omniture produced more than $2 of first-year revenue for every $1 of go-to-market spend, publishes 0.7x as its own healthy baseline. The reading is banded on Leckie's 0.75, with Scale's figure noted beside it.

The one-quarter lag and the multiplication by four are conventions, not measurements. They fit a business whose deals take about a quarter to close and whose revenue is recognised steadily, and they fit less well the further a company is from that.

What is saas magic number calculator?

The magic number is a sales-efficiency ratio: annualised growth in recurring revenue divided by the sales and marketing spend assumed to have produced it. It can be worked out from published quarterly statements alone, using the subscription revenue line and the sales and marketing expense line, which is why analysts lean on it for public companies that do not disclose bookings. It is an investors' rule of thumb rather than an accounting measure, and no standard defines it; a US-listed company that presents it in its filings is expected under SEC guidance to explain how it is calculated.

How to use this calculator.

1. 01Enter recurring revenue for the quarter just closed and for the quarter before it, taken from the same line both times. Subscription revenue is the usual choice; leave out one-off services and implementation fees.
2. 02Enter total sales and marketing expense for the earlier of the two quarters, not the one just closed.
3. 03Read the magic number together with the quarter-over-quarter growth, and look for an acquisition, an unusually large contract or a change in revenue recognition before trusting a high figure.

The formula.

Magic number = (QRev[X] − QRev[X−1]) × 4 ÷ ExpSM[X−1]. QRev[X] is recurring revenue in the quarter just closed, QRev[X−1] in the quarter before, and ExpSM[X−1] is sales and marketing expense in that earlier quarter. The subtraction isolates the new revenue added in one quarter. Multiplying by four restates it as an annual run rate, as though the quarter's gain will keep recurring. Dividing by the previous quarter's spend reflects the assumption that selling effort takes about a quarter to show up as recognised revenue. The dollar increase and the quarter-over-quarter growth rate, the increase divided by the earlier quarter's revenue, are shown alongside. Prior-quarter revenue and spend must both be above zero, and a fall in revenue produces a negative magic number with its own reading.

A worked example.

Frequently asked questions.

References& sources.

1. [1]Leckie, L. (4 March 2008). "Magic Number for SaaS Companies." Guest post on Will Price's blog. Primary source for the formula quoted verbatim on this page — "Magic Number = (QRev[X] – Qrev[X-1])*4/ExpSM[X-1]" — and for the 0.75 and 1.5 thresholds, also quoted verbatim. Retrieved 29 July 2026; formula and thresholds verified against the live post.
2. [2]Scale Venture Partners. "SaaS Metrics: A History of the Magic Number." Independent second authority from the firm that originated the term: records Rory O'Driscoll's 2005 analysis of Omniture ("more than $2 in first-year revenue for every $1 invested in their go-to-market engine") and states "a Magic Number of 0.7x is a fairly healthy efficiency baseline" — a different baseline from Leckie's 0.75. Retrieved 29 July 2026.
3. [3]Jordan, J., Hariharan, A., Chen, F., & Kasireddy, P. (21 August 2015). "16 Startup Metrics." Andreessen Horowitz. Source for the definitional discipline on what counts as recurring revenue in the numerator. Retrieved 29 July 2026.
4. [4]U.S. Securities and Exchange Commission (30 January 2020). Release No. 33-10751, "Commission Guidance on Management's Discussion and Analysis of Financial Condition and Results of Operations." Relevant because the magic number is a non-standard operating metric: a registrant presenting it must disclose its definition and method of calculation. sec.gov returns HTTP 403 to automated fetchers; release identifiers verified independently.