Magic number calculator
Magic number is a unit-economics metric, calculated as Net new ARR in the quarter ÷ prior-quarter S&M (equivalently (Δ quarterly revenue × 4) ÷ prior-quarter S&M).
- Formula
- Net new ARR in the quarter ÷ prior-quarter S&M (equivalently (Δ quarterly revenue × 4) ÷ prior-quarter S&M)
SaaS magic number
Magic number = Net new ARR in the quarter ÷ Prior-quarter S&M$
$
Magic number
0.75
How it’s worked out
- 1Net new ARR ÷ prior-quarter S&M$900,000 ÷ $1,200,0000.75
Runs in your browser; nothing you type is sent anywhere. Amounts in US dollars.
How to read it
The magic number measures sales efficiency: how much new annual recurring revenue each dollar of last quarter's sales and marketing produced.
It is a quarterly measure and noisy on small numbers; read the trend over several quarters.
Common mistakes
- Using the same quarter's spend.
- Using revenue instead of ARR without annualizing it.
Questions
- What is a good magic number?
- Above 0.75 is commonly read as efficient enough to invest more in sales and marketing; below 0.5 suggests fixing efficiency first.
- Why the prior quarter's spend?
- Because spend takes time to produce revenue: this quarter's ARR is attributed to last quarter's spend.
Read it with
The metrics read alongside this one, and the terms it is confused with.
- CAC calculatorCAC is a unit-economics metric, calculated as Sales & marketing spend ÷ new customers.Calculator
- LTV to CAC calculatorLTV:CAC is a unit-economics metric. It has no single agreed formula — state the inputs.Calculator
- Net new MRR calculatorNet new MRR is a recurring-revenue metric, calculated as New + Expansion − Contraction − Churned.Calculator
- Magic numberMagic number is a unit-economics metric, calculated as Net new ARR in the quarter ÷ prior-quarter S&M (equivalently (Δ quarterly revenue × 4) ÷ prior-quarter S&M).Term
The formula is the one the glossary states, and the arithmetic is unit-tested. A ratio with nothing to divide by shows a dash — undefined is not zero. General information, not financial advice.