The SaaS Magic Number is a shorthand for go-to-market efficiency. It tells you how much net new ARR you generate for each dollar spent on sales and marketing in the prior period.
The formula
Magic Number = Net new ARR (this quarter) ÷ S&M spend (prior quarter)
The prior-quarter lag accounts for the ramp time between spending on sales and seeing the resulting ARR. Use quarterly figures to smooth out monthly noise.
Interpretation
| Magic Number | Interpretation | Action |
|---|---|---|
| > 1.0 | Exceptional — invest aggressively | Scale S&M spend immediately |
| 0.75–1.0 | Healthy — optimize and grow | Increase spend while monitoring |
| 0.5–0.75 | Acceptable | Fix conversion funnel before scaling |
| < 0.5 | Inefficient | Diagnose before spending more |
Limitations
The magic number doesn't distinguish between customer acquisition and expansion revenue. Use it alongside CAC payback and LTV:CAC for a complete picture. Also note it's insensitive to gross margin — a company with 50% gross margin looks identical to one with 85% in the magic number.
Use the Unit Economics Calculator to calculate your magic number alongside other key unit economics metrics.