SaaS Magic Number Calculator
Measure sales-and-marketing efficiency: how much new annual recurring revenue each dollar of prior-quarter S&M spend generated, scored against the 0.75 and 1.0 benchmarks.
How it works
Magic number = (current-quarter revenue − prior-quarter revenue) × 4 ÷ prior-quarter S&M spend
The magic number annualizes one quarter’s revenue gain and divides it by the sales-and-marketing spend that produced it, giving new ARR per dollar invested. A reading of 1.0 means a dollar of S&M bought a dollar of new annual recurring revenue — roughly a one-year payback and a clear signal to invest more. Below about 0.75, acquisition is burning cash faster than it returns, so the fix is conversion and retention rather than a bigger budget.
Worked example
Revenue rises from $2.4M to $2.6M in a quarter, a $200,000 gain. Annualized that is $800,000 of new ARR. Against $700,000 of prior-quarter S&M spend, the magic number is 800,000 ÷ 700,000 ≈ 1.14 — efficient growth.
Frequently asked questions
Why multiply the revenue gain by four?
The gain is one quarter of new revenue; multiplying by four annualizes it into new ARR so it is comparable to the yearly value a customer represents. It assumes the quarterly increase recurs.
Why use the prior quarter’s S&M spend?
Sales and marketing take time to convert into revenue, so this quarter’s new revenue was largely driven by last quarter’s spend. Lagging the spend by a quarter lines cause up with effect.
What magic number should I aim for?
Above 1.0 is excellent and argues for spending more; 0.75–1.0 is healthy; below 0.75 suggests each growth dollar returns too little and you should improve efficiency before scaling.
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Educational estimate, not financial advice.