SaaS Magic Number Calculator
Measure sales efficiency: how much new ARR each unit of sales and marketing spend produces.
Magic number
What it measures
The magic number divides new ARR in a quarter by sales and marketing spend in the previous quarter, on the logic that spend takes a quarter to convert.
Why it matters
It answers the scaling question: does another unit of go to market spend pay for itself? Above 0.75 the answer is usually yes.
A worked example
Adding 150,000 ARR after spending 120,000 the quarter before gives 1.25: each unit of spend returned 1.25 in annual revenue.
How to read and improve it
Under 0.5, fix the motion before adding budget. The number tends to reward focus on one channel done properly.
Frequently asked questions
What is a good magic number?
0.75 and above supports more investment. Above 1 is efficient. Under 0.5 means the engine needs work first.
Why last quarter's spend?
Pipeline lags spend. Matching current ARR to current spend blurs cause and effect.
More in SaaS metrics: SaaS CAC Calculator · Customer Lifetime Value Calculator · Churn Rate Calculator
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