SaaS Magic Number
How much new revenue each sales and marketing dollar buys — the magic number formula and the thresholds that matter.
What is it?
The SaaS magic number measures go-to-market efficiency: how many dollars of new annualised revenue each dollar of sales and marketing spend produces. It answers the question every board asks before approving a bigger budget — if we pour more into this engine, does more come out?
It is CAC's company-level cousin. CAC prices one customer; the magic number grades the whole acquisition machine, expansion and churn included, which makes it harder to flatter with segmentation choices.
How to calculate?
Take the net new ARR added in a quarter and divide it by the sales and marketing spend of the *previous* quarter — the lag matters, because this quarter's wins were bought with last quarter's budget. Adding $60,000 of annualised revenue on $40,000 of prior-period spend is a magic number of 1.5.
Use net new ARR (new plus expansion minus contraction and churn), not gross. A team that closes heroically while the base leaks can post a great gross number and a damning net one — and net is the one that pays salaries.
What is a good magic number?
The classic thresholds: above 0.75, the engine is efficient — invest more. Between 0.5 and 0.75, acceptable but examine the funnel before scaling spend. Below 0.5, every incremental dollar is buying growth at a loss; fix the motion before feeding it. Above 1.5, you may be under-investing — the engine could absorb more budget than it is getting.
Read it as a trend across at least three or four quarters. A single quarter swings on deal timing, and the lag structure means one big enterprise close can flatter two quarters in a row.