Sales Efficiency

An adaptation of the Magic Number for Enterprise SaaS companies. Long sales cycles and the variance in time of the sales cycles make defining the “prior period” S&M expense difficult. Therefore, in such cases, we use the Sales & Marketing expense in the same period as the New Subscription Bookings, whether actual or forecasted. For example, if you project $20M in New Subscription Bookings for a given fiscal year, then your Sales & Marketing expense should, in theory, be ~$20M to achieve a 1.0x ratio.  Keep in mind the fact that ratios calculated in this manner will be lower than a Magic Number calculation exactly because you are using current period S&M expense. It would be very rare to see an Enterprise SaaS company achieve a 3.0x multiple.

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