SaaS Metric
Magic Number
Definition
The SaaS Magic Number measures how efficiently sales and marketing spend converts into new recurring revenue. Magic Number = net new ARR in a period ÷ sales and marketing spend in the prior period. A result above ~0.75 generally means your go-to-market is efficient enough to invest more; below ~0.5 suggests you should fix the funnel before spending more.
Formula
Magic Number = net new ARR (this period) ÷ sales & marketing spend (prior period) Equivalently = (current-quarter revenue − prior-quarter revenue) × 4 ÷ prior-quarter S&M spend
Benchmark
Above ~0.75 is efficient and supports investing more in growth; 0.5–0.75 is workable; below ~0.5 signals a go-to-market problem to fix before scaling spend.
What the Magic Number tells you
The Magic Number answers a practical question: if I spend another dollar on sales and marketing, how much new recurring revenue do I get back? It lags spend by a period because the revenue a quarter of spend generates usually shows up in the following quarter.
A high Magic Number is a signal to press the accelerator — your acquisition engine is efficient and more spend should produce proportional growth. A low number means the opposite: adding spend will mostly waste money until conversion, targeting, or retention improve.
Frequently asked questions
What is a good SaaS Magic Number?
Above roughly 0.75 is considered efficient and a green light to invest more in growth. Between 0.5 and 0.75 is workable but worth optimizing. Below about 0.5 suggests your go-to-market needs fixing before you add spend.
How is the Magic Number calculated?
Divide net new ARR generated in a period by the sales and marketing spend from the prior period. A common quarterly version is (current-quarter revenue minus prior-quarter revenue) × 4, divided by prior-quarter sales and marketing spend.
Related metrics
Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) is the fully loaded sales and marketing spend to win one customer. Learn the CAC formula, the LTV:CAC ratio, and healthy SaaS benchmarks.
CAC Payback Period
CAC payback period is how many months of gross margin it takes to recoup the cost of acquiring a customer. Learn the formula and healthy SaaS benchmarks.
Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the normalised yearly value of recurring subscriptions. Learn the ARR formula, how it differs from MRR and total revenue, and when to use it.
SaaS Quick Ratio
The SaaS quick ratio measures growth efficiency: new + expansion MRR divided by churned + contraction MRR. Learn the formula, what a ratio of 4+ means, and benchmarks.
Track this automatically
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Benchmarks are general SaaS ranges and vary by segment, stage and business model. Last reviewed 2026-05-30.