Calculate your SaaS Magic Number — net new ARR divided by prior quarter S&M spend — to measure how efficiently your go-to-market converts sales investment into revenue.
The Magic Number measures the efficiency of your go-to-market motion. It was popularized
by Lars Dalgaard and later referenced extensively by David Sacks and investors at scale.
The formula
Magic Number = Net New ARR (this quarter) / S&M Spend (prior quarter)
The one-quarter lag is intentional: sales and marketing spend takes time to produce
bookings. Using prior-quarter spend captures the actual return on that investment.
At $500k net new ARR and $400k prior-quarter S&M spend: Magic Number = 1.25 —
solid, bordering on excellent.
Magic Number benchmarks
Magic Number
Interpretation
> 1.5
Exceptional — step on the gas
0.75–1.5
Good — invest steadily in S&M
0.5–0.75
Marginal — improve efficiency before scaling
< 0.5
Poor — diagnose CAC and close rate issues
Magic Number vs Burn Multiple
Both measure efficiency, from different angles:
- Magic Number: GTM-only efficiency. Net new ARR / S&M spend. Ignores R&D, G&A.
- Burn Multiple: Total efficiency. Net burn / net new ARR. Includes all spending.
A company can have a great Magic Number (efficient S&M) but a poor Burn Multiple
(overspending on R&D or G&A relative to growth). Both metrics are needed.
When Magic Number matters most
Magic Number is most useful from $1M ARR to $20M ARR — the stage where you're
actively scaling a repeatable GTM motion. At very early stage (pre-PMF), it's
noise. At growth stage, it's a signal to optimize before Series B.
Investors at Sequoia, a16z, and Bessemer all use variants of Magic Number as
a quick filter in SaaS diligence.
Frequently asked questions
What does this calculator do?
Calculate your SaaS Magic Number from quarterly net new ARR and prior-quarter S&M
spend, with implied CAC and GTM payback period.
What Is the SaaS Magic Number? Formula, Benchmarks, and Examples
The SaaS Magic Number measures GTM efficiency: net new ARR divided by prior-quarter S&M spend. Learn the formula, benchmarks, and how top SaaS companies use it.
The SaaS Magic Number measures how efficiently your go-to-market (GTM) converts
sales and marketing investment into annual recurring revenue. A Magic Number of 1.0
means every dollar of S&M spend generates one dollar of new ARR.
Formula: Magic Number = Net New ARR (this quarter) / S&M Spend (prior quarter)
The one-quarter lag is intentional — S&M spend today closes as bookings next quarter.
Why the Magic Number matters
Revenue growth rate alone doesn't tell you if the growth is efficient. A company growing
at 100% ARR with a Magic Number of 0.4 is spending $2.50 per dollar of ARR added —
unsustainable. A company growing 60% with a Magic Number of 1.5 is building efficiently.
Investors use the Magic Number as a quick filter: is this GTM scalable?
SaaS Magic Number vs Burn Multiple: Key Differences Explained
Magic Number and Burn Multiple both measure SaaS efficiency but from different angles. Learn which to use and when, with examples from real SaaS benchmarks.
Both Magic Number and Burn Multiple are capital efficiency metrics popularized by
David Sacks and used in venture diligence. They answer related but different questions.
Magic Number: GTM efficiency
Magic Number = Net New ARR / Prior-quarter S&M spend
Measures how efficiently your sales and marketing converts spend into ARR.
Ignores R&D, G&A, and COGS — focused purely on go-to-market.
Burn Multiple: Total efficiency
Burn Multiple = Net Cash Burn / Net New ARR
Measures how much total cash you spend per dollar of net new ARR added.
Includes all spending: S&M, R&D, G&A, infrastructure, headcount.
When they diverge
A company can have an excellent Magic Number (efficient S&M) but a poor Burn Multiple
if R&D or G&A spending is high relative to growth. Conversely, a poor Magic Number
with low total burn might mean you're growing slowly but frugally.
Use both together:
- Magic Number tells you if GTM is efficient
- Burn Multiple tells you if the whole business is efficient
How to Improve Your SaaS Magic Number: 5 Tactics That Work
Improve your SaaS Magic Number by reducing CAC, increasing close rates, shortening sales cycles, and focusing spend on highest-converting channels.
The Magic Number improves when net new ARR increases faster than S&M spend, or when
S&M spend decreases while maintaining ARR growth. Here are five high-leverage tactics.
1. Fix your highest-cost acquisition channels
Break down Magic Number by channel: paid search, outbound sales, field events. Cut or
optimize channels with Magic Number under 0.5. Double down on channels above 1.5.
2. Shorten the sales cycle
A 90-day sales cycle means last quarter's S&M investment doesn't show up in this
quarter's bookings. Reducing cycle length improves the quarterly Magic Number by
aligning spend and revenue more tightly.
3. Improve close rate through better discovery
Most Magic Number problems are close rate problems. Sales reps qualifying more carefully
and running better discovery calls can dramatically improve bookings from the same spend.
4. Invest in onboarding to drive expansion ARR
Net new ARR includes expansion from existing customers. Expansion MRR has near-zero
incremental S&M cost — every dollar of expansion ARR improves your Magic Number directly.
5. Reduce sales headcount cost per ARR
If your sales team productivity is low (ARR per rep below $600k–$800k at Series B),
you may have overhired sales reps relative to your pipeline volume. Fix pipeline before
adding quota-carrying headcount.