Definition
The SaaS Magic Number is a sales efficiency heuristic. It approximates how much recurring revenue output you generate relative to sales & marketing spend, using a lag to reflect conversion delay.
Formula (common simplified version)
Magic Number ~ (net new ARR in period * 4) / prior-period sales & marketing spend
SaaS Magic Number example
If net new ARR is $250k in the quarter and prior-quarter S&M spend was $400k, Magic Number ~ (250k * 4) / 400k = 2.5. Use it as a directional efficiency signal and validate with retention.
How to use it
- Track it as a trend metric (quarterly is common) rather than a single point.
- Segment by motion (self-serve vs sales-led) if possible.
- Pair with retention (NRR/GRR) to ensure growth is durable.
Benchmarks (directional)
- Above 1.0 is often considered healthy in steady-state SaaS.
- Values below 0.5 usually mean payback is too slow or retention is weak.
- Use your own trendline; benchmarks vary by ACV and sales cycle.
Data QA checklist
- Use the same lag assumption every period (often one quarter).
- Confirm net new ARR excludes one-time items and migrations.
- Align S&M spend definitions (sales-only vs sales + marketing).
Common mistakes
- Ignoring lag effects between spend and revenue.
- Comparing across businesses with different cycles and expansion behavior.
- Using blended spend without understanding what is included (marketing-only vs sales+marketing).