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★ Does sales and marketing spend turn into recurring revenue?

SaaS Magic Number Calculator

Calculate the SaaS magic number from net new ARR and prior-quarter sales and marketing spend. Free calculator with commonly cited thresholds.

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Your Magic number

0.75x

Efficient: room to spend more

  • Each 1 of last quarter's sales and marketing spend produced 0.75 of net new ARR.

magic number = net new ARR this quarter ÷ sales & marketing spend last quarter

Magic number: 0.75x.

Low magic number? Sales is pushing a product that doesn't sell itself yet. Let's fix the product side.

Let's talk
01

How it works

magic number = net new ARR this quarter ÷ sales & marketing spend last quarter

Sales and marketing spend takes time to turn into revenue, so the formula compares this quarter’s new ARR with the previous quarter’s spend.

Some versions use the change in quarterly revenue × 4 instead of net new ARR. They measure the same thing; use one and stick to it.

02

Worked example

A company added $300,000 of net new ARR this quarter after spending $400,000 on sales and marketing last quarter.

Magic number worked example
InputValue
Net new ARR this quarter$300,000
Sales & marketing spend, previous quarter$400,000
Magic number0.75x

That lands in the efficient: room to spend more band. Change any input above to run your own numbers.

03

Benchmarks

The usual reading, often attributed to Scale Venture Partners, is that above 0.75 you should invest more in sales and marketing, and below 0.5 you should slow down and fix efficiency. Treat the thresholds as directional; sources differ on the exact cut-offs.

Magic number benchmark bands
Magic numberReading
under 0.5xInefficient: fix the funnel before spending more
0.5x to 0.75xMiddling: tune before scaling
0.75x and aboveEfficient: room to spend more

Directional: these are rules of thumb, not universal standards. Compare yourself with companies at your stage, selling to the same kind of customer.

Source: ChartMogul, SaaS Magic Number.

04

How to improve it

  • Fix conversion between stages before adding budget at the top of the funnel.
  • Move small deals to self-serve so expensive sales time goes to large ones.
  • Cut channels with the slowest payback.
  • Raise average contract value with packaging, not discounts.
05

Questions founders actually ask

What is a good SaaS magic number?
Above 0.75 is commonly read as efficient enough to invest more in growth; below 0.5 signals a problem in the sales and marketing engine. The thresholds are rules of thumb, often attributed to Scale Venture Partners.
Why use the previous quarter’s spend?
Because spend leads revenue. Marketing and sales effort in one quarter mostly closes in the next.
Should I use gross or net new ARR?
Net new ARR (after churn) is stricter and more common. Gross new ARR measures pure acquisition efficiency but ignores the leaky bucket.
How is the magic number different from CAC payback?
They are closely related. The magic number works at company level with ARR; CAC payback works per customer and includes gross margin.
06

Related metrics

All 12 SaaS metric calculators

07

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Fine print

Tools: on the house.
Engineer: by the hour.

Moving them is the expensive part, and the part I'm good at: activation flows, upsell moments and the product work behind better numbers.

I'm Himanshu, an AI and full-stack engineer. I build MVPs, AI agents and the growth plumbing around them for early-stage startups.

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