SaaS Magic Number
What is SaaS Magic Number?
The SaaS Magic Number measures sales efficiency: how many dollars of new annual recurring revenue each dollar of sales and marketing spend generates, using prior-quarter spend to respect the lag between spend and revenue.
Also known as: Magic Number, Sales Efficiency Magic Number
SaaS Magic Number Formula
Magic Number = Net New ARR in Quarter / S&M Spend in Prior Quarter | Variable | Meaning |
|---|---|
Net New ARR in Quarter | ARR added this quarter (new + expansion − churn − contraction). |
S&M Spend in Prior Quarter | Total sales and marketing spend in the preceding quarter. |
How to Calculate SaaS Magic Number
Worked example
- Net New ARR (this quarter)
- $300,000
- S&M Spend (prior quarter)
- $400,000
- → Magic Number
- 0.75
SaaS Magic Number Calculator
Magic Number = Net New ARR in Quarter / S&M Spend in Prior Quarter | Variable | Meaning |
|---|---|
Net New ARR in Quarter | ARR added this quarter (new + expansion − churn − contraction). |
S&M Spend in Prior Quarter | Total sales and marketing spend in the preceding quarter. |
Worked example
- Net New ARR (this quarter)
- $300,000
- S&M Spend (prior quarter)
- $400,000
- → Magic Number
- 0.75
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SaaS Magic Number Benchmarks
| Segment | Level | Benchmark |
|---|---|---|
| general | good | 0.75 x |
| general | great | 1 x |
Common Mistakes with SaaS Magic Number
- Reading a single quarter in isolation — lumpy enterprise bookings make the magic number noisy; judge the trailing few quarters.
- Scaling spend on a strong magic number while CAC payback and churn tell a different story: the metrics must agree before pouring fuel.
SaaS Magic Number vs Related Metrics
- SaaS Magic Number vs Burn Multiple — how the two differ and when each matters.
SaaS Magic Number FAQ
What is the SaaS magic number?
The magic number divides net new ARR added in a quarter by the sales and marketing spend of the quarter before. At 1.0, a dollar of S&M creates a dollar of ARR per year — spend pays back in roughly a year of revenue terms.
What is a good magic number?
Above ~0.75 is generally efficient enough to keep investing in growth; above 1.0 is excellent and usually a signal to invest more aggressively. Below ~0.5 the go-to-market engine needs fixing before it needs funding.
More questions? See the full SaaS Magic Number FAQ.