Magic Number
Magic Number measures how much new recurring revenue you get back for every dollar of sales and marketing spend. It is the standard read on whether growth is being bought efficiently.
What Is the SaaS Magic Number? Formula and Benchmarks
Formula: Magic Number = Net New ARR added this quarter / Sales & Marketing spend in the previous quarter.
Example: you added $100k of net new ARR this quarter and spent $200k on sales and marketing last quarter. Magic Number = $100k / $200k = 0.5.
Above 1.0 means every dollar of S&M is buying more than a dollar of new ARR, and spending harder is usually the right call. 0.75 to 1.0 is acceptable. Below 0.75 says acquisition is inefficient and more spend will make it worse, not better.
The trap: some write the formula as (quarterly revenue growth x 4) / prior-quarter S&M. That is the same calculation, because multiplying a quarter of recognised revenue growth by four is how you arrive at ARR in the first place. Do not do both. Multiplying net new ARR by four annualises an already annualised number and inflates the result fourfold, which is enough to turn a failing 0.5 into a healthy-looking 2.0.
Use the previous quarter for spend, not the current one. Sales and marketing spent today shows up as revenue later, and pairing both from the same quarter flatters the number in a growing business.
Examples
A company adds $100,000 of net new ARR this quarter after spending $200,000 on sales and marketing last quarter. Magic Number is $100,000 divided by $200,000, which is 0.5. That falls below the 0.75 threshold, signaling that acquisition spend is not converting efficiently into new revenue yet.