Formula
How to Calculate Magic Number
A SaaS efficiency metric measuring how much ARR growth is generated per dollar of sales and marketing spend — above 0.75 is generally considered efficient.
SaaS Magic Number
Magic Number = Net New ARR (Q) / S&M Spend (Q-1)
Where
- Net New ARR
- = New ARR added this quarter
- S&M Spend
- = Sales & marketing spend from the prior quarter
What Is Magic Number?
The Magic Number formula: (Current Quarter ARR - Prior Quarter ARR) x 4 / Prior Quarter S&M Spend. A score above 1.0 means the company generates more than $1 of annualized revenue for every $1 spent on sales and marketing — very efficient. Between 0.75-1.0 is good. Below 0.5 suggests the go-to-market motion is struggling or the market isn't responding well.
Worked Example
If a SaaS company spent $1M on S&M in Q1 and ARR grew from $10M to $12.5M, the Magic Number is (($12.5M - $10M) x 4) / $1M = ($10M / $1M) = 10 — phenomenal. If ARR only grew $200K, the Magic Number is 0.8 — solid but not exceptional.
Why Magic Number Matters
The Magic Number is one of the clearest signals of go-to-market efficiency. Investors use it to evaluate whether increased S&M spend will drive proportional growth or whether the model is fundamentally broken.
Related Terms
Frequently Asked Questions
How do you calculate Magic Number?
Magic Number is calculated using the formula: Magic Number = Net New ARR (Q) / S&M Spend (Q-1). A SaaS efficiency metric measuring how much ARR growth is generated per dollar of sales and marketing spend — above 0.75 is generally considered efficient.
What is a good Magic Number?
What constitutes a "good" Magic Number depends on context — the fund's stage, vintage year, and strategy. Check our benchmarks and calculators for specific ranges.