Find out how efficiently your sales and marketing spend turns into recurring revenue — and whether your numbers say to accelerate or pump the brakes.
Recurring revenue last quarter.
Recurring revenue this quarter.
Fully-loaded sales & marketing.
Where your sales efficiency sits, and what each band tells you to do next.
| Magic number | Read | What to do |
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The SaaS magic number measures how efficiently sales and marketing turns into recurring revenue. It's a single ratio that tells you whether spending more on growth will pay back — or just widen your burn.
Because spend lags revenue, the metric pairs this quarter's revenue gain (annualised) with last quarter's S&M. A result of 1.0 means a dollar of go-to-market spend produced a dollar of new annual recurring revenue inside a year.
(Current Qtr Rev − Prior Qtr Rev) × 4 / Prior Qtr S&M Example: revenue up $300K on $1M prior S&M:
At 0.75 and above, your go-to-market motion is working. Adding spend should produce proportional new ARR, so this is the green light to invest in growth with confidence.
Below 0.5, more budget just burns faster. Fix conversion, targeting, and retention before scaling spend — a leaky funnel doesn't get better by feeding it more leads.
The magic number measures sales and marketing efficiency: how much new annual recurring revenue you generate for each dollar of S&M spend. It compares one quarter's revenue gain (annualised) to the prior quarter's S&M spend, because spend takes roughly a quarter to convert into revenue. A magic number of 1.0 means every dollar of S&M returned a dollar of new ARR within a year.
Roughly 0.75 or higher is considered efficient. Below 0.5 your go-to-market motion is leaking and you should fix conversion, targeting, or retention before adding budget. Between 0.75 and 1.0 the motion is working well. Above 1.0 is excellent and can even signal you're under-investing — you could likely spend more while staying efficient.
Take the increase in revenue from the prior quarter to the current quarter, multiply it by 4 to annualise it, then divide by the prior quarter's sales and marketing spend. Formula: (current-quarter revenue − prior-quarter revenue) × 4 ÷ prior-quarter S&M spend. Using net new ARR directly, it's simply net new ARR for the quarter ÷ prior-quarter S&M.
Sales and marketing spend rarely converts to revenue instantly — there's a lag while leads move through the funnel and deals close. Pairing this quarter's revenue gain with last quarter's spend approximates that lag, giving a fairer read on efficiency than comparing spend and revenue from the same period.
The magic number measures only sales and marketing efficiency. Burn multiple measures all cash burned — product, engineering, overhead, everything — against net new ARR. Use the magic number to judge your go-to-market engine, and burn multiple to judge the whole company's capital efficiency.
Yes — use fully-loaded S&M: salaries, commissions, ad spend, tooling, events, and content. Counting only paid media flatters the number and hides the true cost of growth. The point of the magic number is to test whether your entire go-to-market investment is paying back.
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