Definition
SaaS Magic Number definition: a sales efficiency heuristic that compares net new ARR to prior-period sales & marketing spend (with a lag).
Formula
Magic Number ~ (net new ARR in quarter * 4) / prior-quarter sales & marketing spend
Example
If net new ARR in the quarter is $1.0M and prior-quarter sales & marketing spend was $2.0M, Magic Number ~ ($1.0M * 4) / $2.0M = 2.0.
How to use it
- Use a consistent lag (often one quarter) so trends are comparable.
- Pair with retention or burn multiple to validate quality of growth.
Common mistakes
- Ignoring lag effects between spend and revenue.
- Using blended averages that hide channel differences.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "SaaS Magic Number" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., SaaS Magic Number Calculator) to sanity-check assumptions.
- Read the related guide (e.g., SaaS Magic Number: definition, formula, and how to use it) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- SaaS Magic Number Calculator: SaaS Magic Number definition and calculation using net new ARR and prior-period sales & marketing spend.
Guides
- SaaS Magic Number: definition, formula, and how to use it: SaaS Magic Number definition explained: what it measures, the formula, an example, lag assumptions, and how to interpret it alongside burn multiple and payback.
- Burn multiple: definition, formula, and how to use it: Burn multiple explained: net burn / net new ARR. Learn how to compute it, interpret it, and avoid common mistakes.