SaaS Magic Number
The SaaS magic number measures how much new ARR each dollar of sales and marketing spend generates, with a one-quarter lag. A magic number of 1.0 means a dollar of S&M produced a dollar of new annual recurring revenue.
Formula
Worked example
ARR grows from $4.0M to $4.6M in Q2 while Q1 S&M spend was $500k: magic number = $600k ÷ $500k = 1.2 — spend more, the engine is working.
Conventional reading: below 0.5, the go-to-market motion is broken — fix it before adding budget; 0.5–0.75, borderline; above 0.75–1.0, efficient — step on the accelerator. The one-quarter lag crudely models sales-cycle delay between spend and revenue.
Because the numerator is net ARR change, churn drags the magic number down — which is a feature. It punishes buying growth into a leaky bucket.
Compute it: CAC calculator