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Magic Number vs CAC Payback: Which Sales Efficiency Metric to Use

The magic number looks at revenue per dollar of spend; CAC payback looks at months to recover the cost of a customer. Here's when each is the better guide.

By Muhammad Ahmad. Published . 1 min read.

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Both metrics ask whether sales and marketing spend pays off, but from different angles. The magic number works at company level with revenue; CAC payback works per customer with margin.

The magic number

Quarterly revenue increase × 4 ÷ last quarter's sales and marketing spend. It needs no customer counts, so it's quick to calculate from financial statements.

A quarter where revenue grew by only $50,000

  1. New annual revenue

    ($1,150,000 − $1,100,000) × 4equals$200,000

  2. Magic number

    $200,000 ÷ $600,000equals0.33

A magic number of 0.33 means $3 of spend produced $1 of new annual revenue. That usually calls for fixing the sales motion before spending more.

CAC payback

Customer acquisition cost ÷ monthly gross margin per customer. It tells you how many months a customer must stay before they've repaid what it cost to win them.

CAC of $300 and $40 of monthly gross margin

  1. CAC

    $30,000 ÷ 100 customersequals$300.00

  2. Margin per customer

    $50.00 × 80%equals$40.00/mo

  3. Payback

    $300.00 ÷ $40.00equals7.5 months

Which to use

  • Use the magic number for a quick, company-wide read, especially when comparing quarters.
  • Use CAC payback when margins or customer sizes vary, or when deciding between channels.
  • Check CAC payback against churn: a 7.5-month payback only works if customers stay well beyond 7.5 months.

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