Unit Economics

Magic Number: SaaS Magic Number

How efficiently sales and marketing spend converts into new ARR, on a quarterly basis.

Definition

The SaaS Magic Number is a quarterly measure of sales and marketing efficiency: net new ARR added in a quarter divided by sales and marketing spend in the previous quarter, annualised. A magic number above 1.0 indicates efficient growth.

Formula

Magic Number = (Net New ARR This Quarter × 4) ÷ S&M Spend Last Quarter

Magic Number = (Net New ARR Q × 4) / S&M Spend Q-1

Worked example

Net new ARR of £500k in Q3, S&M spend of £400k in Q2. Magic Number = (500 × 4) / 400 = 5.0 — exceptional. Most healthy SaaS sits between 0.7 and 1.5.

Why it matters

Magic Number is the public-market standard for sales efficiency because it normalises CAC across cohorts and avoids LTV assumptions. Above 1.0: invest more. Between 0.5 and 1.0: maintain. Below 0.5: fix the engine before adding fuel.

Common mistakes

  • Computing the formula on revenue rather than ARR (consumer-style businesses misuse this)
  • Using current-quarter rather than prior-quarter S&M spend
  • Applying it to non-subscription businesses where it does not translate

Related terms

CACCAC PaybackRule of 40LTV:CAC

Read more in The Guide

Chapter: Metrics That Matter →

Sources & further reading

  • — Drawn from Evara's working definitions used on retained search and revenue advisory engagements (2024–2026).
  • — Reconciled against industry conventions in SaaStr, OpenView SaaS Benchmarks and Bessemer State of the Cloud.
  • — Reviewed by Rich Evans, Strategic Advisor at Evara and former operator/founder.

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