Free SaaS Magic Number Calculator
Calculate the SaaS Magic Number to measure sales efficiency by comparing new recurring revenue generated to sales and marketing spend.
SaaS Magic Number
1.25
SaaS Magic Number vs Current Quarter ARR
How to Calculate the SaaS Magic Number
Formula
Magic Number = (Current Quarter ARR - Previous Quarter ARR) / Previous Quarter Sales & Marketing Spend
The magic number measures how efficiently sales and marketing dollars convert into new recurring revenue. A value above 0.75 suggests you should invest more in sales and marketing. Between 0.5 and 0.75 indicates decent efficiency. Below 0.5 means your go-to-market engine needs tuning before scaling further.
Example Calculation
ARR grew from $4.5M to $5M. Last quarter, the company spent $400,000 on sales and marketing.
- 01Net New ARR = $5,000,000 - $4,500,000 = $500,000
- 02Magic Number = $500,000 / $400,000 = 1.25
- 03Every dollar of S&M spend generated $1.25 in new ARR.
Frequently Asked Questions
Learn More
How to Calculate Profit Margin
Learn how to calculate gross, operating, and net profit margins step by step. Understand what healthy margins look like across industries and how to improve yours.