The SaaS magic number formula is (net new ARR this quarter x 4) / sales and marketing spend last quarter. It is a sales efficiency metric that shows how much new annualized recurring revenue each euro of prior-quarter go-to-market spend produced. A magic number above 0.7 generally suggests efficient growth spending, below 0.5 suggests the spend is not converting well, and above 1.0 suggests you could likely invest more and grow faster.
By Pitchkit · Last Updated October 10, 2026
The magic number is a quick gut check on whether your sales and marketing dollars are actually producing revenue growth, which is exactly what investors want to see before they fund a bigger go-to-market budget. A strong number is one of the clearest signals that you are ready to raise a growth round and spend it well.
The formula is: Magic number = (Net new ARR this quarter x 4) / Sales and marketing spend last quarter. Take the increase in ARR from the prior quarter to the current quarter, multiply by four to annualize the quarterly change, then divide by the sales and marketing expense from the prior quarter.
Using the prior quarter's spend, rather than the current quarter's, accounts for the lag between spending money and seeing it convert to revenue. Recalculate every quarter rather than once a year, since a single strong or weak quarter can swing the ratio a lot at an early stage.
A company's ARR grows from €2.2 million to €2.6 million in a quarter, a €0.4 million increase. Prior quarter sales and marketing spend was €0.5 million. Magic number equals (0.4 times 4) divided by 0.5, which is 3.2, an unusually strong result often seen at an early stage where a small sales and marketing spend produces outsized returns.
A second, more typical example: ARR grows from €5.0 million to €5.6 million in a quarter, a €0.6 million increase. Prior quarter sales and marketing spend was €2.0 million. Magic number equals (0.6 times 4) divided by 2.0, which is 1.2, still a strong, efficient result at a more mature stage.
These are typical ranges, not fixed rules. A magic number around 0.7 to 1.0 suggests efficient spend. Below 0.5 is generally considered weak. Above 1.0 is strong, though it is rare to sustain at scale, and very high numbers at an early stage often reflect a small denominator more than exceptional efficiency.
At pre-seed there is usually too little spend to make the ratio meaningful, so investors look at CAC payback and pipeline instead. At seed and early Series A, with two or three quarters of steady spend, a magic number above 0.7 supports the case that more go-to-market budget will convert into growth. Some sources use the change in quarterly revenue instead of net new ARR, so state which version you use.
Using bookings instead of recognized ARR, which can overstate the number. Ignoring seasonality, since a slow prior quarter followed by a strong one can make the ratio look artificially high. Not lagging the sales and marketing spend by one quarter, which breaks the logic of the metric entirely.
Include the magic number as a footnote on your financials slide alongside CAC and payback period, so investors see the full sales efficiency picture in one place. Example line: a magic number of 3.2, based on ARR growth versus prior quarter sales and marketing spend.
Turn your metrics into a pitch narrative investors can follow.
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