The SaaS Magic Number measures how efficiently your go-to-market (GTM) converts sales and marketing investment into annual recurring revenue. A Magic Number of 1.0 means every dollar of S&M spend generates one dollar of new ARR.
Formula: Magic Number = Net New ARR (this quarter) / S&M Spend (prior quarter)
The one-quarter lag is intentional — S&M spend today closes as bookings next quarter.
Why the Magic Number matters
Revenue growth rate alone doesn't tell you if the growth is efficient. A company growing at 100% ARR with a Magic Number of 0.4 is spending $2.50 per dollar of ARR added — unsustainable. A company growing 60% with a Magic Number of 1.5 is building efficiently.
Investors use the Magic Number as a quick filter: is this GTM scalable?
Benchmarks
| Magic Number | Verdict |
|---|---|
| > 1.5 | Exceptional — invest more aggressively |
| 0.75–1.5 | Healthy — steady investment is justified |
| 0.5–0.75 | Marginal — optimize before scaling |
| < 0.5 | Poor — fix before spending more |
Calculate yours at the Magic Number Calculator.