What is the SaaS magic number?
The magic number measures how much new ARR each dollar of sales and marketing spend produces. A magic number of 1 means a dollar of S&M returned a dollar of new ARR within the period.
It is the sales-efficiency read. Where the burn multiple covers all spend, the magic number isolates whether your go-to-market motion is paying back.
The magic number formula.
Magic number = net new ARR added this quarter divided by the prior quarter's sales and marketing spend. The lag reflects that spend takes a quarter to convert.
Net new ARR of 1 million dollars on a prior quarter S&M spend of 800,000 dollars is a magic number of 1.25.
A worked example.
Last quarter you spent 800,000 dollars on sales and marketing. This quarter you added 1 million dollars of net new ARR. The magic number is 1,000,000 divided by 800,000, which is 1.25.
What is a good SaaS magic number?
Above 1 is excellent, and a signal you could spend more and still grow profitably. 0.75 to 1 is healthy. 0.5 to 0.75 is borderline and worth watching. Below 0.5 means sales and marketing is not converting efficiently, and adding spend will make it worse before it gets better.
A high magic number is not a reason to sit still. It usually means you are under-investing and could grow faster.
How to improve your magic number.
Raise new ARR per dollar of spend, or lower the spend needed per dollar of ARR. The structural lever is a channel that lowers blended acquisition cost.
Organic search adds pipeline without per-click cost, so it improves the ARR you get per sales and marketing dollar over time. See how we lower blended acquisition cost with SEO, or look at the Workwize numbers.