SaaS Magic Number
The Magic Number measures sales and marketing efficiency by comparing new ARR generated to the S&M spend required to generate it. It tells you how efficiently you're converting marketing dollars into recurring revenue.
Q1 ARR: $2M. Q2 ARR: $2.5M. Q1 S&M spend: $400K. Magic Number = ($2.5M - $2M) / $400K = 1.25.
Magic Number > 1 means you're generating more than $1 of ARR for each $1 of S&M spend, so you should invest more in growth. Magic Number < 0.5 means your go-to-market engine needs tuning.
Invest aggressively
Efficient
Needs optimization
Inefficient
S&M spend has a lagged effect. Money spent in Q1 generates pipeline that closes in Q2. Using lagged spend provides a more accurate efficiency measure.
Magic Number measures go-to-market efficiency in the short term (quarter-to-quarter). LTV:CAC measures total customer economics over the full lifetime. Both matter.
A Magic Number > 1.5 often means you're under-investing in growth. You could likely spend more on S&M and still maintain efficiency. Time to step on the gas.
We build real-time dashboards that track Magic Number and every other metric investors care about. Updated daily. Investor-ready.
