Magic Number Calculator
The SaaS Magic Number is a compact efficiency metric that tells you how much Annual Recurring Revenue you generate for every dollar invested in sales and marketing. It was popularized by venture investors as a quick screen for go-to-market efficiency. A Magic Number above 1.0 suggests that every dollar of sales and marketing spend returns more than one dollar in ARR, signaling a strong case for accelerating investment. Below 0.5, the business should diagnose whether the issue is product-market fit, sales execution, or pricing before adding fuel to the fire. This calculator uses current and prior quarter MRR along with prior quarter sales and marketing spend to produce the standard Magic Number calculation.
Magic Number formula
Net New ARR = (Current Quarter MRR - Prior Quarter MRR) * 4
Magic Number = Net New ARR / Prior Quarter S&M Spend
Multiplying by 4 annualizes the quarterly MRR change to get ARR terms.
Magic Number benchmarks
- Below 0.5: investigate go-to-market inefficiency before increasing spend.
- 0.5 to 0.75: acceptable efficiency; optimize before scaling.
- 0.75 to 1.0: good - consider increasing S&M investment.
- Above 1.0: excellent - accelerate investment aggressively.
Magic Number: frequently asked questions
What is the SaaS Magic Number?
The Magic Number measures how much ARR is generated for each dollar spent on sales and marketing. It is calculated as net new ARR (annualized) divided by prior quarter sales and marketing expense.
What is a good Magic Number?
A Magic Number above 0.75 is considered good. Above 1.0 is excellent and signals that you should invest more aggressively in sales and marketing. Below 0.5 indicates inefficiency.
Why is the prior quarter's S&M spend used?
Sales and marketing spend takes time to convert to closed contracts and recognized revenue. Using the prior quarter's spend aligns the investment with the revenue it eventually generates, giving a more accurate efficiency picture.
How is the Magic Number different from CAC payback?
CAC payback measures months to recover acquisition cost per customer. The Magic Number measures revenue efficiency at the company level across all S&M investment. Both measure efficiency from different angles.
When should I invest more based on Magic Number?
When your Magic Number exceeds 0.75 to 1.0, additional investment in sales and marketing is likely to yield positive returns. Below 0.5, fix the underlying sales process or product-market fit before increasing spend.
Sources
- U.S. Securities and Exchange Commission: EDGAR Company Filings.
- U.S. Small Business Administration: Manage Your Finances.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.