Magic Number Calculator
Magic Number measures how much new annualized revenue a SaaS company generates for every dollar of sales and marketing spent the prior quarter, a fast read on whether it's time to invest more in growth or fix efficiency first.
Magic Number
What This Means
Above 0.75 is generally considered efficient enough to justify increasing sales and marketing spend; below 0.5 signals an efficiency problem to fix first.
The Formula
Magic Number = (Current Quarter ARR - Prior Quarter ARR) × 4 / Prior Quarter Sales and Marketing Spend
Why It Matters
A rule-of-thumb widely used by SaaS investors: above 0.75, a company is generally considered efficient enough to justify accelerating sales and marketing spend; below 0.5, spend is often outpacing what it's producing, and the more urgent priority is fixing efficiency before adding fuel.
Example
A company's ARR grows from $2,000,000 to $2,300,000 in a quarter, after spending $800,000 on sales and marketing the prior quarter. Magic Number is ($300,000 times 4) divided by $800,000, which equals 1.5, comfortably above the 0.75 threshold typically read as efficient.
Frequently Asked Questions
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