---
title: "What Is Magic Number?"
term: "Magic Number"
description: "Magic Number is a SaaS sales-efficiency metric: net new ARR in a quarter divided by prior-quarter sales and marketing spend, showing how much recurring revenue each dollar of S&M generated."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/magic-number
---

# What Is Magic Number?

> Magic Number is a SaaS sales-efficiency metric: net new ARR in a quarter divided by prior-quarter sales and marketing spend, showing how much recurring revenue each dollar of S&M generated.

**Magic Number** measures how efficiently a SaaS company converts sales and marketing spend into new recurring revenue.

### How it works

The common formula:

**Magic Number = (Net new ARR in current quarter) ÷ (S&M spend in prior quarter)**

Net new ARR includes new logos plus expansion minus churn and contraction, annualized. Some teams use revenue instead of ARR or adjust for one-time services—pick a definition and stick to it.

Rough benchmarks used in boardrooms: below 0.5 suggests weak efficiency—fix conversion or retention before scaling S&M. Between 0.5 and 0.75 is acceptable for many growth-stage companies. Above 0.75 often signals room to invest more in sales and marketing, provided [CAC payback](/glossary/cac-payback) and churn support it.

Magic Number is a lagging indicator: it uses last quarter's spend against this quarter's bookings, so it smooths short hiring ramps but can miss sudden market shifts.

### Why it matters

- **Founders:** A rising Magic Number with stable churn supports hiring AEs; a falling number with rising headcount is a warning to pause expansion.
- **Investors:** It complements [LTV:CAC](/glossary/ltv-cac) by focusing on incremental ARR yield from marginal S&M dollars, not lifetime averages.

### Common mistake

Using gross bookings without netting churn, which inflates Magic Number when logo churn is high. Investors will reconcile against [MRR](/glossary/mrr) bridges.

### Related ideas

See also [CAC](/glossary/cac), [MRR](/glossary/mrr), [CAC payback](/glossary/cac-payback), and [burn multiple](/glossary/burn-multiple).

## FAQ

### What is Magic Number in simple terms?

Take the net new recurring revenue you added this quarter and divide it by what you spent on sales and marketing last quarter. A result of 0.75 means every $1 of prior S&M produced $0.75 of new ARR this quarter.

### Why does Magic Number matter?

It compresses growth efficiency into one number boards can track. Founders use it to decide when to hire reps; investors use it alongside CAC payback to judge whether scaling S&M will compound or burn cash.


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Source: https://venturecapitaltracker.com/glossary/magic-number