SaaS Magic Number, Burn Multiple and Rule of 40 Calculator
Calculate the SaaS magic number from two quarters of revenue and last quarter’s sales and marketing spend, with a gross-margin adjusted figure and CAC payback. Get the burn multiple from net burn and net new ARR, and check the Rule of 40 from growth and profit margin. Use any or all, in any currency. Free.
For the magic number, enter last and this quarter’s revenue (or recurring revenue) and last quarter’s sales and marketing spend; add the gross margin for the adjusted figure. For the Rule of 40, enter yearly revenue growth and the EBITDA or free cash flow margin; a loss is a negative margin. For the burn multiple, enter net burn and net new ARR for the same period.
Magic number formula
Magic number = (revenue this quarter − revenue last quarter) × 4 ÷ sales and marketing spend last quarter
Example: revenue grows from $2,400,000 to $2,600,000 in a quarter, so $200,000 × 4 = $800,000 of new yearly revenue, after $1,000,000 of sales and marketing. The magic number is 0.8. At a 75% gross margin the adjusted figure is 0.6, a CAC payback of 12 ÷ 0.6 = 20 months.
| Magic number | What it means |
|---|---|
| Below 0.5 | Fix first |
| 0.5 to 0.75 | Improve |
| 0.75 to 1 | Efficient |
| Above 1 | Invest more |
Burn multiple formula
Burn multiple = net burn ÷ net new ARR
Example: a startup burns $1,200,000 in a year and adds $800,000 of net new ARR, a burn multiple of 1.5: good, by David Sacks’s scale.
| Burn multiple | Rating |
|---|---|
| Under 1 | Amazing |
| 1 to 1.5 | Great |
| 1.5 to 2 | Good |
| 2 to 3 | Suspect |
| Above 3 | Bad |
Rule of 40 formula
Rule of 40 score = yearly revenue growth % + profit margin %
| Growth and margin | Score |
|---|---|
| 32% growth, 12% free cash flow margin | 44 ✓ |
| 60% growth, −15% margin | 45 ✓ |
| 25% growth, −10% margin | 15 ✗ |
A fast-growing company can pass while losing money, and a slow-growing one can pass with high profits. Use the magic number to see whether sales and marketing spend is working, and the CAC calculator to compare cost per customer with lifetime value. Revenue lost from existing customers lowers both numbers: track it with the net revenue retention calculator.
Frequently asked questions
What is the SaaS magic number?
The magic number shows how much new yearly revenue each dollar of sales and marketing brings in. Take this quarter’s revenue minus last quarter’s, multiply by 4 to make it yearly, and divide by last quarter’s sales and marketing spend.
What is a good magic number?
Above 0.75 is generally seen as efficient: the company brings in more recurring revenue than it spends to win it. Between 0.5 and 0.75 growth is paying back slowly, and below 0.5 the go-to-market model usually needs fixing before more money goes in. Above 1 is a signal to invest more.
What is the Rule of 40?
The Rule of 40 says a SaaS company’s yearly revenue growth rate plus its profit margin should add up to 40% or more. A company growing 32% with a 12% free cash flow margin scores 44 and passes; one growing 25% with a −10% margin scores 15.
Which profit margin should I use for the Rule of 40?
Most companies use the EBITDA margin or the free cash flow margin. Pick one, say which one you use, and keep using it so the score can be compared over time and with other companies.
Why adjust the magic number for gross margin?
Revenue that costs a lot to deliver is worth less than revenue with high margins. Multiplying the magic number by the gross margin gives a fairer view, and 12 divided by the adjusted figure is roughly the number of months it takes to earn back customer acquisition cost.
What is the burn multiple?
The burn multiple is net burn divided by net new ARR in the same period: how much cash a startup burns for each dollar of new recurring revenue. David Sacks, who proposed it, rates under 1 as amazing, 1 to 1.5 great, 1.5 to 2 good, 2 to 3 suspect and above 3 bad.
Is what I type stored or sent anywhere?
No. The numbers are worked out in your browser and saved only in this browser so you can come back to them. Nothing you type is sent to SalesBond or anyone else. Click Start over to clear it.
Related tools: customer acquisition cost calculator, net revenue retention calculator, customer lifetime value calculator. More on sales and running a sales team on the SalesBond blog and the home page.
Official sources
- Wikipedia: Rule of 40 — growth rate plus profit margin of 40% or more.
- David Sacks: The Burn Multiple — net burn ÷ net new ARR and the grading scale.
- Klipfolio: SaaS Magic Number — formula and the 0.5 and 0.75 benchmarks.
Updated on Nov 6, 2026. This calculator is for information only and is not tax, legal or payroll advice. Benchmarks are rules of thumb for subscription software businesses, not investment advice.
