Evaluate your sales and marketing efficiency by comparing net new ARR to your acquisition spend.
Estimated Net New ARR:
0
SaaS Magic Number:
Efficiency Score Benchmarks:
The SaaS Magic Number is a standardized metric used to evaluate the efficiency of a company's sales and marketing engine. It measures how much new recurring revenue is generated for every dollar spent on customer acquisition costs during a specific period.
Magic Number = (Current Q Revenue - Previous Q Revenue) * 4 / Previous Q S&M Spend
Consider a company with $100,000 in current quarter revenue, $80,000 in previous quarter revenue, and $50,000 in sales and marketing spend from the previous quarter.
Generally, a Magic Number above 1.0 is considered the gold standard for high-growth SaaS companies. It indicates that you can recover your customer acquisition costs within a year. A number between 0.75 and 1.0 is still healthy, while anything below 0.5 suggests significant inefficiency in your sales process.
Using GAAP revenue provides a conservative and highly verifiable look at performance. Unlike ARR, which can sometimes be calculated with varying internal rules, GAAP revenue is standardized, making it easier for investors and stakeholders to benchmark your efficiency against peers.
The basic Magic Number formula does not account for gross margin. However, sophisticated companies often multiply the result by their gross margin percentage to calculate the 'Gross Margin Adjusted Magic Number', providing a more accurate picture of actual cash return.
© 2026 Hreflabs LLC. All rights reserved.
Made with ❤️ for everyone who loves accurate calculations
