What is a good magic number?

Above 1.0 is excellent and signals you should invest more in sales and marketing. 0.7-1.0 is healthy and efficient. 0.5-0.7 is acceptable but warrants optimization. Below 0.5 suggests sales and marketing spend is not converting efficiently to revenue and needs investigation.

Why does the magic number use last quarter S&M spend?

Sales and marketing spending takes time to convert into revenue. A dollar spent on marketing today may not produce a closed deal for 1-3 months. Using the prior quarter spend accounts for this lag and gives a more accurate picture of spend-to-revenue efficiency.

Pitchkit

Back to Glossary

GLOSSARY

Magic number

The SaaS magic number measures sales efficiency by comparing new ARR generated to the sales and marketing spend from the prior quarter. It is calculated as (current quarter net new ARR x 4) divided by prior quarter sales and marketing expense. A magic number above 0.7 suggests efficient growth, below 0.5 suggests inefficiency, and above 1.0 suggests strong enough efficiency to increase investment.