SaaS Magic Number
Compute SaaS Magic Number = (ARR_current − ARR_prev) × 4 / S&M_prev.
SaaS Magic Number: sales efficiency
The Magic Number measures how efficiently each dollar invested in sales and marketing turns into new recurring revenue: Magic = (Net New ARR in quarter × 4) / S&M spend in the previous quarter. Created by Scale Venture Partners. Reading: > 1.5 accelerate spend (each dollar pays back in < 8 months), 0.75–1.5 healthy zone, < 0.75 reduce burn and review go-to-market. Example: Net New ARR in Q3 = $250k, annualized $1M; S&M in Q2 = $800k → Magic = 1.25 — healthy growth.
Context and benchmarks
Used in Series B+ rounds to decide whether to increase burn in growth, in board reports, and as an industry benchmark. Influences ICP choice (raise the bar when Magic is low) and the valuation multiple — companies with Magic > 1 historically receive premium ARR multiples.
FAQ
Why use the previous quarter's S&M? Because there is a lag between spending and revenue generation — the pipeline built in Q2 closes in Q3.
Magic Number or CAC Payback? Complementary. Magic measures aggregate efficiency; CAC Payback measures per-customer payback time. Use both.
Does it work for early-stage startups? Less useful below $1M ARR — the volume is too low and the figure becomes volatile. Most reliable from Series B onwards.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.