What is Magic Number?
This quarter's revenue minus last quarter's, times 4, divided by last quarter's sales and marketing spend. Around 0.75 or higher is commonly read as efficient, but it ignores gross margin, so high model costs can hide behind it.
($2.3M − $2.0M) × 4 ÷ $1.5M = 0.8
The magic number shows…
Write it in your own words in the app.
In real work
Quarterly revenue rose from $2.0 million to $2.3 million after $1.5 million of sales and marketing spend, so Bianca's memo put the magic number at 0.8.
In the illustration
The crank's spend counter runs up to $1.5M, last quarter's sales and marketing. The platform lifts from last quarter's $2.0M mark to this quarter's $2.3M; the ×4 gear turns that $0.3M step into $1.2M a year, and the dial settles on 0.8.
Work out the magic number in your deal notebook for each of the last four quarters from the revenue and sales and marketing figures below. Show the arithmetic, then say what gross margin adds to the picture.
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