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SaaS Magic Number Calculator

Sales efficiency from this-quarter net-new ARR versus last-quarter S&M spend.

Page updated 2026-09-14.

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Default $210,000.

Default $160,000.

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Magic number

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How efficiently sales and marketing spend buys new ARR

$210,000 in net new ARR this quarter, against $160,000 in S&M spend from the prior quarter, produces a magic number of 1.31 -- rated 'Efficient (>=1)'. That means every dollar spent on sales and marketing last quarter is generating roughly $1.31 in new annualized revenue this quarter.

The one-quarter lag between spend and ARR is deliberate: this classic formula assumes S&M spend takes roughly a quarter to convert into closed, revenue-generating deals, so it deliberately compares this quarter's new ARR against last quarter's spend rather than the same quarter's.

A magic number above 1.0 is generally read as a green light to keep investing in sales and marketing at the current pace or scale it up; below 0.5 typically signals it's time to slow S&M spend and fix efficiency before adding more fuel.

Where this formula gets misapplied

Classic (ARR_t - ARR_t-1) / S&M_t-1. Some teams annualize differently. This is the classic Bessemer-style formula, but some teams calculate it with quarterly S&M annualized (multiplied by 4) against annual new ARR instead -- always check which convention a given benchmark or investor is using before comparing your number against theirs.

Using the wrong quarter's S&M spend (matching this quarter's spend to this quarter's ARR, instead of the lag) is the most common calculation error, and it materially changes the result since S&M spend and its resulting ARR rarely land in the same quarter.

This measures new-business efficiency specifically -- it says nothing about retention of existing customers, which is a separate and equally important half of overall growth efficiency.

Pairing this with retention and burn metrics

A strong magic number paired with weak retention is a common trap -- check the Net Revenue Retention Calculator to see whether new business is being offset by churn out the back door.

For the cash-efficiency version of this same question -- how much was actually burned, not just spent on S&M -- see the Burn Multiple & Capital Efficiency Calculator.

Frequently Asked Questions (FAQ)

How is the magic number of 1.31 calculated?

Magic number = this quarter's net new ARR / last quarter's S&M spend = $210,000 / $160,000 = 1.31. The one-quarter lag reflects the typical delay between spending on sales and marketing and that spend converting into closed revenue.

Why use last quarter's S&M spend instead of this quarter's?

Classic (ARR_t - ARR_t-1) / S&M_t-1. Some teams annualize differently. Sales cycles mean S&M spend in a given quarter typically produces closed revenue in a later quarter, not the same one -- comparing new ARR to the prior quarter's spend better matches cause to effect.

What does a magic number below 0.5 mean?

It's generally read as inefficient sales and marketing spend relative to the new revenue it's producing -- a signal to investigate sales cycle length, close rates, or channel mix before increasing S&M investment further.

Does this account for revenue lost to churn?

Only indirectly, if 'net new ARR' already nets out churn for the period. This measures new-business efficiency specifically -- pair it with a retention metric to see the full growth picture, since a strong magic number doesn't guarantee healthy overall growth if churn is high.

Can this be calculated annually instead of quarterly?

Yes, using annual new ARR against the prior year's annual S&M spend, though the quarterly version is more common since it reacts faster to changes in sales efficiency.

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