Finance

SaaS Magic Number

A measure of sales and marketing efficiency: net new ARR added per dollar of S&M spend.

The Magic Number measures sales and marketing efficiency for SaaS companies. It's the ratio of net new ARR added in a quarter (annualized) to sales and marketing spend in the prior quarter. A Magic Number above 1 indicates capital-efficient growth; below 0.5 indicates inefficient growth that may not scale.

Formula

Magic Number = (Net New ARR × 4) / Sales & Marketing Spend (prior quarter)

Example

Q2: added $1M in net new ARR. Q1 sales & marketing spend: $2M. Magic Number = ($1M × 4) / $2M = 2.0. Strong capital efficiency.