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.

How this is calculated

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)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

0.8 is efficient

New ARR added this quarter: $4,000,000.00
Sales and marketing spend last quarter: $5,000,000.00

Magic number0.8

arithmetic identity

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no spend

New ARR added this quarter: $1,000,000.00
Sales and marketing spend last quarter: $0.00

Magic number0

degenerate case: guarded division

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no growth from spend

New ARR added this quarter: $0.00
Sales and marketing spend last quarter: $5,000,000.00

Magic number0

boundary

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