The SaaS Magic Number is the sales efficiency metric calculated as quarterly net new annualized recurring revenue divided by quarterly sales and marketing spend. It's often expressed with the previous quarter's S&M spend as the denominator, on the theory that current-quarter S&M produces future-quarter ARR. The metric assesses whether the company is generating revenue efficiently from its growth investment. Values above 1.0 indicate efficient growth (every dollar of S&M produces more than a dollar of net new ARR), values between 0.5-1.0 indicate moderate efficiency, and values below 0.5 indicate problematic efficiency. It is a SaaS-specific metric that complements LTV:CAC and CAC payback.
The calculation:
Basic f...