SaaS Magic Number Calculator Formula
Understand the math behind the saas magic number calculator. Each variable explained with a worked example.
Formulas Used
SaaS Magic Number
magic_number = previous_quarter_sales_marketing > 0 ? (current_quarter_arr - previous_quarter_arr) / previous_quarter_sales_marketing : 0Net New ARR
new_arr = current_quarter_arr - previous_quarter_arrVariables
| Variable | Description | Default |
|---|---|---|
current_quarter_arr | Current Quarter ARR(USD) | 5000000 |
previous_quarter_arr | Previous Quarter ARR(USD) | 4500000 |
previous_quarter_sales_marketing | Previous Quarter Sales & Marketing Spend(USD) | 400000 |
How It Works
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.
Worked Example
ARR grew from $4.5M to $5M. Last quarter, the company spent $400,000 on sales and marketing.
current_quarter_arr = 5000000previous_quarter_arr = 4500000previous_quarter_sales_marketing = 400000
- 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.
Ready to run the numbers?
Open SaaS Magic Number Calculator