SaaS Magic Number Calculator
The fastest read on go-to-market efficiency: how much new ARR each dollar of sales and marketing returns. Tells you whether to scale spend or fix the funnel first.
Inputs
Use quarterly revenue figures. Sales and marketing spend should be the prior quarter, since that spend drives this quarter revenue.
Revenue recognized this quarter
Revenue recognized the quarter before
Fully loaded S&M for the prior quarter
Magic number benchmarks
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Frequently asked questions
What is the SaaS magic number?+
The SaaS magic number measures sales efficiency: how much new annual recurring revenue you generate for each dollar spent on sales and marketing. The classic formula takes the quarter-over-quarter increase in revenue, annualizes it by multiplying by four, and divides by the prior quarter sales and marketing spend. A magic number of 1.0 means every dollar of sales and marketing returned one dollar of new ARR within a year. Higher is more efficient.
How do you calculate the magic number?+
Magic Number = (Current Quarter Revenue minus Prior Quarter Revenue) times 4, divided by Prior Quarter Sales and Marketing Spend. The multiply-by-four annualizes the quarterly revenue gain so it is comparable to the spend that produced it. Using prior quarter spend reflects the lag between when you spend on go-to-market and when that spend converts into revenue. This calculator does all of that for you from three inputs.
What is a good magic number?+
The widely used bands: below 0.5 means your go-to-market is inefficient and you should fix it before adding spend. 0.5 to 0.75 is borderline. 0.75 to 1.0 is good and means you can keep investing. Above 1.0 is strong and is usually a signal to press the accelerator. Above 1.5 is excellent but often a sign you are underinvesting in sales and leaving growth on the table. The healthy zone most operators target is roughly 0.75 to 1.5.
Should I use revenue or gross profit in the magic number?+
Both versions exist. The original formula uses revenue. A more conservative variant multiplies the revenue gain by gross margin first, which gives a gross-profit magic number that accounts for the cost of delivering the service. For high-gross-margin SaaS the two are close. If your gross margin is below about 70 percent, the gross-profit version is the more honest read on efficiency. This tool uses the revenue version, which is the most commonly cited benchmark.
Why use prior quarter sales and marketing spend instead of current?+
There is a lag between spending on go-to-market and the revenue that spending produces. A deal worked this quarter often closes next quarter, and brand or demand-gen spend takes even longer to convert. Dividing this quarter revenue gain by last quarter spend lines the cause up with the effect. Using same-quarter spend would understate efficiency for any company that is increasing its sales and marketing budget over time.
How is the magic number different from CAC payback and LTV:CAC?+
They are related views of the same question. CAC payback tells you how many months it takes to recover the cost of acquiring one customer. LTV:CAC compares the lifetime value of a customer to that acquisition cost. The magic number works at the company level rather than the per-customer level: it looks at total revenue added against total sales and marketing spent. It is faster to calculate from a P&L and is the metric investors most often use to judge whether it is safe to pour more fuel on growth.
How do I improve my magic number?+
Two directions. Increase the numerator: reduce churn so net revenue retention lifts the revenue gain, raise prices, and focus reps on the segments that close fastest. Decrease the denominator: cut paid channels that do not convert, shorten the sales cycle, and shift budget toward the motions with the best return. Because the metric is sensitive to both, the fastest wins usually come from killing the worst-performing spend while protecting the channels that already work.