SaaS Magic Number Calculator: Formula, Benchmark, and Example
Calculate SaaS Magic Number using net new ARR and prior-period sales and marketing spend, with formula, benchmark ranges, and example.
The SaaS Magic Number formula is annualized net new ARR divided by prior-period sales and marketing spend.
Prefer an explanation- Read the guide.
SaaS Magic Number: definition, formula, and how to use itUnit economics hub: CAC, LTV, payback, and runway (a practical stack)ARR waterfall: reconcile starting ARR to ending ARR (net new ARR)Net new ARR: definition, formula, and how to calculate it
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4 for quarterly, 12 for monthly (used to annualize net new ARR).
Used to estimate required net new ARR or max spend.
Tip: you can type commas (e.g., 10,000).
Example
Using the default inputs, the result is:
2.5x
- Net new ARR (period)
- $250,000
- Sales & marketing spend (prior period)
- $400,000
- Periods per year
- 4
- Target magic number (optional)
- 1
How to calculate
- Pick a quarter (or month) and measure net new ARR for that period.
- Use the prior period's sales & marketing spend as the input spend (to account for lag).
- Set periods per year (4 for quarterly, 12 for monthly) to annualize net new ARR.
- Compute Magic Number ~= (net new ARR * periods per year) / prior-period S&M spend.
Formula
Magic Number ~= (Net new ARR in period * periods per year) / prior-period S&M spend
- Uses a lag: prior-period S&M spend is compared to current revenue output.
- Works best as a trend metric and when measured consistently (often quarterly).
FAQ
Is Magic Number the same as burn multiple-
No. Magic Number uses sales & marketing spend and net new ARR. Burn multiple uses net cash burn and net new ARR.
Common mistakes
- Ignoring lag effects (spend today converts later).
- Using a blended number that hides channel/segment differences.
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Quick checks
- Keep time units consistent (monthly vs annual) across inputs and outputs.
- Segment by cohort/channel/plan before trusting a blended average.
- Use the related guide to avoid common definition and denominator mismatches.