A sales-efficiency metric measuring how much new annual recurring revenue each pound of sales and marketing spend generates.
Magic number = (current-quarter revenue − prior-quarter revenue) × 4 ÷ prior-quarter sales & marketing spend
Revenue rises from £1.0M to £1.3M in a quarter (a £0.3M gain), after £1.0M of S&M the prior quarter.
(£0.3M × 4) ÷ £1.0M = £1.2M ÷ £1.0M = 1.2 — efficient, with room to invest
The SaaS magic number isolates the efficiency of your go-to-market engine. It compares the new recurring revenue you generated in a quarter against the sales and marketing you spent the quarter before — on the logic that spend takes a quarter or so to convert into revenue.
The standard formula annualises one quarter's revenue gain and divides it by the prior quarter's sales and marketing spend. A magic number of 1.0 means every pound of S&M returned a pound of new annual recurring revenue within a year — a healthy, repeatable motion.
Read it as a green light or a brake. Below about 0.5 your funnel is leaking, and adding spend will only burn cash faster; fix conversion, targeting, or retention first. Around 0.75 and above, the motion works and you can invest with confidence. Well above 1.0 can even mean you are under-investing and leaving growth on the table.
The magic number tells you whether to press the accelerator or the brake on growth spend. A strong number signals that more sales and marketing will pay back; a weak one warns that pouring in budget will just widen the burn — making it one of the most practical board-level efficiency checks there is.
Below 0.5 is inefficient (fix the funnel before spending more), 0.5–0.75 is acceptable, 0.75–1.0 is efficient, and above 1.0 is excellent — sometimes a sign you could invest more aggressively.
Roughly 0.75 or higher is considered efficient — each pound of sales and marketing returns at least that much new annual recurring revenue within a year. Above 1.0 is excellent and can signal room to invest more; below 0.5 means the go-to-market motion needs work before you add spend.
The magic number looks only at sales and marketing efficiency, whereas burn multiple measures all cash burned against new ARR. Use the magic number to judge go-to-market, and burn multiple to judge the whole company's capital efficiency.
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