What is sales efficiency?
Sales efficiency is the ARR you generate for every dollar of sales and marketing spend. A sales efficiency of 1 means a dollar of go-to-market returned a dollar of new ARR. It is a direct read on whether your acquisition engine pays back.
Gross sales efficiency uses gross new ARR; net sales efficiency uses net new ARR, after churn and contraction. The net version is the more honest one, because it counts what you kept.
The sales efficiency formula.
Sales efficiency = new ARR divided by sales and marketing spend over the same period. Use gross new ARR for the gross ratio, net new ARR for the net ratio.
It is closely related to the SaaS magic number. The difference is that the magic number uses net new ARR against the prior quarter's spend, to reflect the lag; sales efficiency is usually measured in the same period.
A worked example.
You generate 1 million dollars of gross new ARR on 800,000 dollars of sales and marketing spend. Gross sales efficiency is 1,000,000 divided by 800,000, which is 1.25.
What is a good sales efficiency?
Above 1 is the line: each dollar of go-to-market returns more than a dollar of ARR, and you can usually afford to spend more. 0.5 to 1 is workable but worth watching. Below 0.5, the motion is not paying back, and adding spend makes it worse before it gets better.
Read it next to CAC payback. A strong sales efficiency with a long payback still ties up cash, which matters when runway is tight.
How to improve sales efficiency.
Generate more ARR per dollar, or spend fewer dollars per unit of ARR. The structural lever is channel mix, since paid acquisition raises the cost of every new dollar.
Organic search adds ARR without per-click cost, so it lifts sales efficiency as it compounds. See how we lower acquisition cost with SEO.