Metric guide · Growth efficiency
The SaaS magic number
Short answer
The SaaS magic number measures sales and marketing efficiency. It is calculated as net new ARR added in a quarter divided by sales and marketing spend in the previous quarter. A higher number means each dollar of go-to-market spend produced more annual recurring revenue. The one-quarter lag reflects the time it takes spend to produce customers.
The formula
Magic number = net new ARR in quarter ÷ prior-quarter sales and marketing spend
Unit: Ratio. Better when it goes up.
How to calculate it
- Calculate net new ARR for the most recent full quarter.
- Sum sales and marketing spend for the quarter before it, including salaries, tools and ad spend.
- Divide net new ARR by that prior-quarter spend.
- Track it over several quarters rather than reading one in isolation.
Mistakes that distort it
Versions of the formula based on quarterly revenue multiply the revenue change by four to annualize it. ARR is already annual, so applying the multiplier again overstates the result.
Dividing by spend from the same quarter ignores the lag between spend and closed revenue. Use the prior quarter consistently.
Net new ARR already subtracts churn and contraction. Using only new ARR makes efficiency look better than it is.
Where Sondola reads it from
Sondola reads this metric from HubSpot and Typed in, with the source and period on every reading. Each reading keeps where it came from, the period and the date it was recorded, and you can download all of it at any time.
See all 34 integrations →Questions
Is the magic number useful for consumer apps?
It was designed for B2B SaaS with sales-led growth. Consumer subscription apps usually get more from CAC, payback and trial conversion.
What if net new ARR is negative?
The magic number will be negative. It means spend in the prior quarter did not offset churn and contraction in the current one.
Related metrics
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