SaaS Magic Number Calculator
The SaaS magic number is a quick measure of sales-and-marketing efficiency: how many dollars of annual recurring revenue each dollar of spend produced. It annualises the recurring revenue you added in a quarter and divides by the prior quarter's sales and marketing cost, which lags because spend takes time to convert. Enter the current and prior quarter recurring revenue and the prior quarter's spend. This calculator returns the magic number, the net new ARR it implies, and an implied payback in months.
Magic number formula
Net new ARR = (current revenue - prior revenue) * 4
Magic number = net new ARR / prior quarter S and M spend
Implied payback (months) = 12 / magic number
The quarterly revenue change is annualised by multiplying by four. Dividing by the prior quarter's spend matches cost to the revenue it generated.
Interpreting the magic number
- A magic number near or above 0.75 is widely treated as efficient growth; this is a convention, not a rule.
- Using prior-quarter spend reflects the lag between spending and closing.
- Use the same recurring-revenue definition (MRR-based ARR) across quarters.
- A very high magic number can mean you are underinvesting in growth.
- Public SaaS company SEC filings disclose the inputs needed to benchmark this ratio.
SaaS magic number: frequently asked questions
What is the SaaS magic number?
The SaaS magic number is a sales-and-marketing efficiency ratio. It compares the annualised new recurring revenue gained in a quarter against the sales and marketing spend from the prior quarter that generated it.
How is the magic number calculated?
Take the change in quarterly recurring revenue, multiply by four to annualise it, then divide by the previous quarter's sales and marketing spend. A result of 1.0 means one dollar of spend brought one dollar of annual recurring revenue.
What is a good magic number?
A common rule of thumb treats a magic number around 0.75 or higher as efficient enough to invest more in growth, and below about 0.5 as a sign to improve efficiency first. These are conventions, not official thresholds, so judge against your own economics.
Why use the prior quarter's spend?
Sales and marketing spend takes time to convert into closed revenue. Lagging the spend by one quarter better matches the cost to the revenue it produced, giving a fairer efficiency read.
What does the implied payback show?
Implied payback is the inverse of the magic number expressed in months: 12 divided by the magic number. It estimates how many months of new gross revenue are needed to recover the sales and marketing investment.
Official sources
- U.S. Securities and Exchange Commission: EDGAR company filings.
- U.S. Securities and Exchange Commission: Guidance on Management's Discussion and Analysis.
Reviewed by the CalculatorHub team, edited by James Graham, 16 June 2026. See our methodology.