business · 2026-05-01
Compute the SaaS Magic Number (sales efficiency) — annualized new ARR divided by sales + marketing spend, the gold standard sales efficiency metric.
| Current quarter ARR | $12,500,000 |
| Prior quarter ARR | $11,200,000 |
| Quarterly sales + marketing spend | $1,800,000 |
| Gross margin % | 75% |
| Gross Magic Number | 2.17 |
| Quarterly net new ARR | $1,300,000 |
| Annualized new ARR | $5,200,000 |
Created by Scale Venture Partners ~2008. The Magic Number measures sales efficiency:
Magic Number = annualized new ARR ÷ S&M spendA Magic Number of 1.0 means every $1 of S&M generated $1 of net new ARR over a 4-quarter horizon (annualized).
Sales + marketing spent in Q1 produces ARR over many quarters (sales cycle + retention tail). Annualizing the quarterly net new ARR captures the multi-quarter value.
Net New ARR is the standard — captures churn. Some companies use 'gross new ARR' (just adds, ignores churn) which inflates Magic Number and hides retention problems. Real metric is net new (= new + expansion − contraction − churn).
Inverse-related. Magic Number = 1 / payback period (in years). MN of 1.0 → 12-month payback. MN of 0.5 → 24-month payback. MN of 2.0 → 6-month payback. Payback is more intuitive for fundraising; MN is more intuitive for ops.
When comparing companies with different gross margins. A 60% gross margin SaaS at MN=1.0 is less efficient than a 90% gross margin SaaS at MN=1.0 — the lower-margin company keeps less of every dollar. Gross Magic Number normalizes by multiplying by GM.