Business & SaaS · free calculator
SaaS Magic Number calculator
Compute the SaaS Magic Number (sales efficiency) — annualized new ARR divided by sales + marketing spend, the gold standard sales efficiency metric.
Magic Number
Show the work
- Gross Magic Number2.17
- Quarterly net new ARR$1,300,000
- Annualized new ARR$5,200,000
Magic Number — SaaS efficiency in one number
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).
The benchmarks
- >1.5: best-in-class. Push more capital into S&M; the business will absorb it efficiently.
- 0.75 - 1.5: healthy. Continue investing.
- 0.5 - 0.75: marginal. Optimize S&M before scaling.
- <0.5: bad. Don't add fuel; fix the burning car.
Why 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.
Limitations
- Ignores churn-driven contraction: a company can have great new ARR magic with terrible retention (gross-revenue-retention < 90%). Pair with NRR for full picture.
- Lags reality: by the time Magic Number drops, the underlying problem has been brewing for 2-3 quarters.
- Confounded by mix: enterprise contracts close lumpy; one Q can spike Magic Number, next Q goes flat.
Public-company examples (rough recent)
- Cloudflare: ~1.0
- Datadog (peak): ~1.8
- Salesforce (mature): ~0.6
- Atlassian: ~1.5 (low S&M model)
Export
CSVPrintable PDFEmbedNot sure which calc you need? Ask →Related calculators