magic number, SaaS

The SaaS Magic Number is a widely used efficiency metric that quantifies the return on investment for sales and marketing spend by calculating how much new Annual Recurring Revenue (ARR) is generated for every dollar invested in customer acquisition. Typically calculated by taking the net increase in ARR over a specific period (usually a quarter, annualized) and dividing it by the sales and marketing expense from the previous period, it answers the fundamental question of whether a company should accelerate or pause its spending. A Magic Number of 1.0 implies that the company pays back its acquisition costs in one year of revenue; generally, a score below 0.7 suggests inefficient growth that requires operational fixing, while a score above 1.0 indicates a highly efficient sales engine that justifies aggressive investment.