SaaS Magic Number Calculator

The SaaS Magic Number is a sales-efficiency ratio popularized by Scale Venture Partners in 2007. It measures how much new annual recurring revenue you generate for every dollar of sales and marketing spent in the prior quarter. A higher number means your go-to-market motion converts spend into recurring revenue more efficiently.

Take your current quarter recurring revenue, subtract the prior quarter recurring revenue, and multiply that change by 4 to annualize it. Then divide by the sales and marketing spend from the prior quarter. The formula is (current quarter revenue minus prior quarter revenue, times 4) divided by prior quarter sales and marketing spend.

The classic formula uses one quarter of recurring revenue for each period, then multiplies the quarter-over-quarter change by 4 to turn it into an annual run rate. If you enter full-year ARR instead of a single quarter, the x4 step would overstate growth fourfold. Always enter recurring revenue for a single quarter.

Below 0.75 is generally seen as inefficient: each dollar of spend returns under 75 cents of new annual recurring revenue, so it is wise to tighten the funnel before adding budget. From 0.75 to 1.0 is efficient and sustainable, a sign to keep investing at the current pace. Above 1.0 is very efficient and can mean you are underinvesting in growth and could spend more.

Sales and marketing investment usually takes time to convert into closed revenue, so this quarter's new recurring revenue is treated as the payoff of last quarter's spend. Dividing by prior-quarter spend lines up the cost with the revenue it produced. This is why you enter the spend from the quarter before the current one.

No. This tool gives an estimate of sales efficiency for planning and discussion only, and it is not financial, investment, or tax advice. The Magic Number is one signal among many, sensitive to how you define recurring revenue and which costs you count as sales and marketing. Pair it with metrics like CAC payback, net revenue retention, and gross margin before making decisions.