SaaS Magic Number

Also called Magic Number

A measure of sales and marketing efficiency: how much new annual recurring revenue you generate for each unit spent on sales and marketing. Around 1 or above is considered efficient.

Magic number = net new ARR / prior period sales and marketing spend

Why it matters

The SaaS magic number tells you whether it is safe to pour more into go-to-market. A healthy number says spend more to grow; a weak one says fix the funnel before scaling spend.

For example

A company adds 5 crore of new ARR after spending 5 crore on sales and marketing the prior period, a magic number of 1, so it is safe to spend more.

Go deeper

SaaS Magic Number: Formula + Calculator Wall Street Prep · article This is the cleanest plain, formula-first explainer of the magic number: it gives you the exact calculation (quarter-over-quarter new revenue, annualized, divided by prior-quarter sales and marketing spend) and then tells you how to read the result. It names the working thresholds an investor actually has in mind (below 0.75 is inefficient, 0.75 to 1.0 is moderate, above 1.0 is strong) and walks a worked example, so you can compute your own number before your next meeting instead of nodding along. Open wallstreetprep.com →

Related terms

Also in Starting Up

See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.

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