Metrics & Performance
Magic Number
A SaaS efficiency metric measuring how much ARR growth is generated per dollar of sales and marketing spend — above 0.75 is generally considered efficient.
The Magic Number formula: (Current Quarter ARR - Prior Quarter ARR) x 4 / Prior Quarter S&M Spend.
A score above 1.0 means the company generates more than $1 of annualized revenue for every $1 spent on sales and marketing — very efficient. Between 0.75-1.0 is good. Below 0.5 suggests the go-to-market motion is struggling or the market isn't responding well.
In Practice
If a SaaS company spent $1M on S&M in Q1 and ARR grew from $10M to $12.5M, the Magic Number is (($12.5M - $10M) x 4) / $1M = ($10M / $1M) = 10 — phenomenal. If ARR only grew $200K, the Magic Number is 0.8 — solid but not exceptional.
Why It Matters
The Magic Number is one of the clearest signals of go-to-market efficiency. Investors use it to evaluate whether increased S&M spend will drive proportional growth or whether the model is fundamentally broken.