What is Magic Number (SaaS)?
The magic number is a SaaS efficiency metric that measures how much new ARR is generated for every dollar spent on sales and marketing, calculated as net new ARR divided by prior period S&M spend.
The magic number tells investors and CROs whether a company's go-to-market spending is efficient. A magic number above 1.0 means you're generating more than $1 in new ARR for every $1 spent on sales and marketing. Below 0.5 signals a problem with unit economics or GTM efficiency.
How to Calculate the Magic Number
Magic Number = (Current Quarter ARR - Previous Quarter ARR) / Previous Quarter Sales & Marketing Spend. For example: if ARR grew from $20M to $22M ($2M net new) and you spent $2.5M on S&M last quarter, your magic number is 0.8. Some companies annualize the numerator (multiply quarterly net new ARR by 4) for the annualized magic number.
Magic Number Benchmarks
Above 1.0: highly efficient. Invest more aggressively in sales and marketing. Between 0.75-1.0: healthy efficiency. You're getting good returns on GTM spend. Between 0.5-0.75: moderate. Look for optimization opportunities in sales productivity or marketing ROI. Below 0.5: inefficient. Something is structurally broken, whether it's long ramp times, poor lead quality, low win rates, or misallocated spend.
Why CROs Need to Know Their Magic Number
The magic number is what your board uses to decide whether to fund more headcount. A CRO asking for 10 new AEs with a 0.4 magic number will get tough questions. A CRO showing a 1.2 magic number will get a faster yes. It's also a useful benchmark for comparing your GTM efficiency against public SaaS companies that report these figures in earnings calls.
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