SaaS magic number calculator
The magic number measures how much new recurring revenue a SaaS company gets for what it spends on sales and marketing. Enter revenue for this quarter and the previous one (or ARR at the end of each), and the sales and marketing spend of the previous quarter. The calculator annualizes the growth, divides it by the spend and shows where the result sits against common rule-of-thumb bands.
Runs in your browser: nothing you enter is sent anywhere.
How to use it
- Choose whether you enter quarterly revenue or ARR.
- Enter the figure for this quarter and the previous quarter.
- Enter the sales and marketing spend of the previous quarter.
- By quarterly revenue: magic number = (R_q − R_(q−1)) × 4 ÷ S&M_(q−1)
- By ARR: magic number = (ARR_q − ARR_(q−1)) ÷ S&M_(q−1)
- Spend per 1 of new annualized revenue = S&M ÷ new annualized revenue
Worked example
Revenue grew from 2,200,000 to 2,500,000 in a quarter after 1,000,000 of sales and marketing spend:
- New annualized revenue = 300,000 × 4 = 1,200,000.00.
- Magic number = 1,200,000 ÷ 1,000,000 = 1.2: above 1.
- Each 1 of new annualized revenue cost 0.83 of sales and marketing.
By ARR: 12,000,000 → 12,800,000 with 1,600,000 spent gives 800,000 ÷ 1,600,000 = 0.5.
Tips
- Use recurring revenue only; one-off services and setup fees distort the number.
- Some versions subtract churned revenue or use gross-margin-adjusted revenue; compare like with like.
- A single quarter can be noisy; look at the trend over four quarters.
Frequently asked questions
How do you calculate the SaaS magic number?
Magic number = (revenue this quarter − revenue last quarter) × 4 ÷ sales and marketing spend last quarter. From 2,200,000 to 2,500,000 with 1,000,000 spent: 300,000 × 4 ÷ 1,000,000 = 1.2.
Why multiply by 4?
To turn one quarter's revenue growth into a yearly figure, comparable with ARR. If you enter ARR at the end of each quarter, it is already yearly and the calculator does not multiply.
Why the previous quarter's spend?
Deals take time to close, so spending in one quarter shows up as revenue in the next. If your sales cycle is much longer or shorter, a different lag may fit better.
What is a good magic number?
A common rule of thumb: above 1 the go-to-market engine is efficient enough to invest more, 0.75 to 1 is healthy, below 0.75 look at efficiency first. These bands are conventions, not laws; gross margin and churn matter too.