Magic Number Calculator (SaaS)
Calculate the SaaS Magic Number, (Δ new ARR × 4) / prior-quarter S&M spend. ≥0.75 = healthy growth efficiency.
About this tool
The canonical SaaS growth-efficiency metric. <0.5 = slow down; 0.5-0.75 = invest; 0.75+ = pour fuel on the fire.
Frequently asked questions
What is the SaaS Magic Number? +
Magic Number = (quarterly Δ ARR × 4) ÷ prior-quarter S&M spend. It measures how efficiently your sales & marketing investment is generating new annualised recurring revenue. Coined by Scale Venture Partners in the late 2000s, it's the canonical SaaS efficiency benchmark.
What's a good Magic Number? +
Under 0.5 = slow down, your S&M efficiency is too low. 0.5-0.75 = invest cautiously. 0.75-1.0 = healthy, keep spending. Above 1.0 = exceptional, pour fuel on the fire. Below 0.5 sustained over 2+ quarters usually indicates product-market fit issues or saturation in target market.
Why multiply ARR change by 4? +
To annualise the quarterly change so it's comparable to the annual S&M spend run-rate. Without the ×4, you're comparing 3 months of ARR growth to 3 months of spend, which makes the ratio look artificially small versus its accepted benchmark range.
Does Magic Number work for D2C / e-commerce? +
Magic Number was designed for subscription SaaS. For one-time-purchase D2C, use MER (Marketing Efficiency Ratio) or LTV/CAC ratio instead. For subscription D2C boxes, Magic Number works directly, just substitute MRR for ARR.
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