SaaS Magic Number Calculator
Measure how efficiently sales & marketing spend turns into new ARR.
0.73× is workable but not efficient enough to floor it. Improve conversion and retention before scaling spend.
Rule of thumb: above ~0.75 you can invest confidently; below ~0.5 the model isn't ready to scale. It measures efficiency, not absolute growth.
About this calculator
The magic number is the fastest gut-check a SaaS board has for one question: is sales and marketing spend actually working, or is growth being bought at an unsustainable price. It compares how much ARR grew this quarter against how much was spent on S&M last quarter, on the logic that spend takes time to convert into revenue.
How to use it
- Enter current quarter ARR and previous quarter ARR.
- Enter previous quarter sales & marketing spend, the spend that's presumed to have produced this quarter's growth.
- Read net new ARR (the quarter-over-quarter change) and the magic number, net new ARR divided by that prior spend.
- Compare the magic number against the 0.75 and 0.5 thresholds shown in the verdict to gauge whether current GTM efficiency supports investing further.
Methodology
Net new ARR is current quarter ARR minus previous quarter ARR, the absolute dollar growth over one quarter.
The magic number is net new ARR ÷ previous quarter S&M spend. Using prior-quarter spend rather than current-quarter spend is deliberate: it assumes a lag between spending and the ARR it produces, current quarter's growth is attributed to last quarter's investment, not this quarter's.
The commonly used bands are: above roughly 0.75 signals efficient growth worth funding further; 0.5-0.75 is workable but not yet efficient enough to scale aggressively; below 0.5 signals expensive growth that needs a go-to-market fix before adding more budget.
This is a single-quarter snapshot and can be noisy, one unusually large or small deal, a pricing change, or a seasonal quarter can swing the number without reflecting a real efficiency shift. Look at the trend across several quarters rather than acting on one reading alone.
FAQ
Sales and marketing spend doesn't convert into revenue instantly, pipeline built this quarter typically closes next quarter. Using prior-quarter spend against current-quarter ARR growth better matches cause to effect than comparing spend and growth from the same period.
Above roughly 0.75 is the widely cited threshold for "efficient enough to invest more aggressively." Between 0.5 and 0.75 is workable but not yet a green light to scale spend. Below 0.5 usually means fixing conversion, retention, or targeting before adding more budget makes sense.
Treat one quarter as a data point, not a verdict. Large deals, seasonality, or a pricing change can swing it meaningfully. Track it over 3-4 consecutive quarters to see whether efficiency is trending up, flat, or declining before making a major spend decision off it.
Not directly, it only measures net change in ARR, new business plus expansion minus churn and contraction, all netted together. A magic number that looks fine can still hide serious churn if new bookings are masking it. Pair this with an NRR or MRR bridge view for the fuller picture.