SaaS Magic Number
A sales efficiency metric measuring how much new recurring revenue a company generates per dollar of sales and marketing spend.
The magic number compares the growth in annualized recurring revenue during a quarter to the sales and marketing spend from the prior quarter (accounting for the lag between spend and resulting revenue), producing a single ratio for sales efficiency. It's used specifically to judge whether a company should be investing more aggressively in sales and marketing or pulling back.
A magic number above roughly 0.75-1.0 generally suggests the sales and marketing engine is efficient enough to justify accelerating investment; well below that suggests spend isn't converting to growth efficiently and increasing it further would be premature.
Magic number = (current quarter ARR - prior quarter ARR) x 4 / prior quarter sales and marketing spendARR grows from $8M to $9M quarter over quarter (a $1M increase), and the prior quarter's sales and marketing spend was $3.2M. Magic number = ($1M x 4) / $3.2M = 1.25, suggesting an efficient sales engine worth investing further behind.
Use the magic number as a go/no-go signal before ramping sales headcount aggressively — a company scaling its sales team ahead of a magic number consistently above 0.75 is usually burning cash faster than the growth it's buying justifies.
What magic number justifies increasing sales investment?
A commonly cited threshold is 0.75 or above, with figures approaching or exceeding 1.0 considered a strong signal to accelerate sales and marketing spend further.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.