Businesssaas
SaaS Magic Number Calculator
New ARR divided by the previous quarter's sales and marketing spend. Above 0.75 the standard advice is to spend more; below 0.5, to fix efficiency first.
Also called: sales efficiency calculator, saas magic number.
Magic number
0.8
0.8: Efficient. The usual advice is to spend more.
What that means
Efficient. The usual advice is to spend more.
Method and background
How this is calculated
The lag is deliberate: spend in one quarter produces revenue in the next, so dividing by the same quarter's spend flatters a business that is accelerating and punishes one that is decelerating.
magic_number = new_arr / prior_quarter_sales_and_marketing- new_arr
- New annual recurring revenue added this quarter (currency)
- prior_quarter_sales_and_marketing
- Last quarter's sales and marketing spend (currency)