Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The magic number compares new recurring revenue generated against the sales and marketing spend from a prior period specifically, not the same period, because it takes time for that spend to actually convert into new revenue. Comparing spend and resulting revenue from the identical period systematically understates how efficiently that spend is actually working.
Before you rely on it
What to check
Confirm the calculation compares this period's net new revenue against the prior period's sales and marketing spend, not the current period's, since the lag is central to what the metric is actually measuring.
The common error
Where people go wrong with saas magic number calculator
Comparing current-period revenue growth against current-period sales and marketing spend. The metric is built around a deliberate one-period lag, and calculating it same-period against same-period understates real sales efficiency.
Sensitivity evidence
How beginning-quarter MRR changes the saas magic number
| Beginning-quarter MRR | SaaS magic number | Net new ARR run rate | Prior-quarter sales and marketing spend |
|---|---|---|---|
| $80,000 | 4.80× | $480,000 | $100,000 |
| $90,000 | 3.60× | $360,000 | $100,000 |
| $100,000worked example | 2.40× | $240,000 | $100,000 |
| $110,000 | 1.20× | $120,000 | $100,000 |
| $120,000 | 0.00× | $0.00 | $100,000 |
Every input, tested
Which input moves the saas magic number most
| Input | Tested from | To | SaaS magic number at each end | Swing |
|---|---|---|---|---|
| Ending-quarter MRR | $108,000 | $132,000 | 0.96× to 3.84× | 2.88× (120%) |
| Beginning-quarter MRR | $90,000 | $110,000 | 3.60× to 1.20× | 2.40× (100%) |
| Prior-quarter sales and marketing spend | $90,000 | $110,000 | 2.67× to 2.18× | 0.48× (20%) |
Two variables at once
SaaS magic number by beginning-quarter MRR and ending-quarter MRR
| Beginning-quarter MRR \ Ending-quarter MRR | $96,000 | $120,000 | $144,000 |
|---|---|---|---|
| $80,000 | 1.92× | 4.80× | 7.68× |
| $90,000 | 0.72× | 3.60× | 6.48× |
| $100,000 | -0.48× | 2.40× | 5.28× |
| $110,000 | -1.68× | 1.20× | 4.08× |
| $120,000 | -2.88× | 0.00× | 2.88× |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Beginning-quarter MRR | $100,000 |
| Ending-quarter MRR | $120,000 |
| Prior-quarter sales and marketing spend | $100,000 |
| SaaS magic number | 2.40× |
| Net new ARR run rate | $240,000 |
| Prior-quarter sales and marketing spend | $100,000 |
Where the inputs come from
Beginning-quarter MRR and ending-quarter MRR give the net new recurring revenue for the quarter, which the tool annualizes, and prior-quarter sales and marketing spend is what the company spent to generate it, since sales efforts take time to show in revenue. Include salaries, commissions, advertising and tools for the go-to-market team. Use net new MRR after churn if you want a stricter figure.
Using the saas magic number in a real decision
A very high number can also mean under-investment.
When the result stops applying
The measure is noisy quarter to quarter and depends on the lag between spending and revenue. It uses revenue, not gross margin, so low-margin products look better than they are. Annual contracts and seasonality distort quarterly changes. It does not include the effect of churn unless you use net new MRR.
What to compare it with
Combine with the CAC payback and LTV:CAC calculators for unit economics, and the Rule of 40 page for the balance of growth and profit. The MRR growth and burn rate calculators show the scale and the cash effect. Track it over several quarters.
People also ask
Frequently asked questions
What is a good SaaS magic number?
Above 0.75 is generally considered efficient, 0.5 to 0.75 acceptable and below 0.5 a sign to improve efficiency before spending more.
Why use prior-quarter spending?
Because sales and marketing effort takes time to turn into revenue, so the previous quarter's spending is matched with the current quarter's results.
Does a high magic number mean I should spend more?
Often yes, since each dollar produces a lot of revenue, but confirm with payback and retention that the growth is durable.