{
  "slug": "saas-magic-number",
  "title": "SaaS Magic Number Calculator",
  "heading": "SaaS Magic Number Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/saas-magic-number",
  "summary": "Test whether your sales and marketing spend is producing efficient ARR growth.",
  "description": "The magic number compares net new annualised recurring revenue in a quarter to the sales and marketing spend of the prior quarter, answering one question: does another dollar into go-to-market return a dollar of ARR quickly enough to justify it? Above 0.75 is generally read as a green light to spend harder; 0.5 to 0.75 says tune before scaling; below 0.5 means adding spend makes the unit economics worse, not better. This calculator computes both the classic magic number and the implied payback period in months, which is the version most operators actually act on.",
  "formula": "Magic number = (Current quarter ARR − Prior quarter ARR) ÷ Prior quarter S&M spend. Payback months = Prior quarter S&M ÷ (net new ARR ÷ 12) × gross margin adjustment.",
  "dateModified": "2026-08-25",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=saas-magic-number",
  "inputs": [
    {
      "id": "arrNow",
      "label": "Current quarter ending ARR",
      "kind": "number",
      "hint": null,
      "default": 4200000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "arrPrior",
      "label": "Prior quarter ending ARR",
      "kind": "number",
      "hint": null,
      "default": 3800000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "sm",
      "label": "Prior quarter S&M spend",
      "kind": "number",
      "hint": null,
      "default": 520000,
      "unit": "$",
      "min": 1,
      "max": null
    },
    {
      "id": "gm",
      "label": "Gross margin",
      "kind": "number",
      "hint": null,
      "default": 78,
      "unit": "%",
      "min": 1,
      "max": 100
    }
  ],
  "outputs": [
    {
      "id": "magic",
      "label": "Magic number",
      "format": "decimal",
      "hint": null,
      "primary": true
    },
    {
      "id": "grossMagic",
      "label": "Gross-margin-adjusted magic number",
      "format": "decimal",
      "hint": null,
      "primary": false
    },
    {
      "id": "netNew",
      "label": "Net new ARR this quarter",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "payback",
      "label": "CAC payback (months, gross profit basis)",
      "format": "decimal",
      "hint": null,
      "primary": false
    },
    {
      "id": "annualised",
      "label": "Annualised return per S&M dollar",
      "format": "decimal",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Current quarter ending ARR: 4200000 $",
      "Prior quarter ending ARR: 3800000 $",
      "Prior quarter S&M spend: 520000 $",
      "Gross margin: 78 %"
    ],
    "outputs": [
      "Magic number: 0.77",
      "Gross-margin-adjusted magic number: 0.6",
      "Net new ARR this quarter: $400,000.00",
      "CAC payback (months, gross profit basis): 20",
      "Annualised return per S&M dollar: 3.08"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter current quarter ending arr ($).",
      "Enter prior quarter ending arr ($).",
      "Enter prior quarter s&m spend ($).",
      "Enter gross margin (%).",
      "Read your magic number on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "arrNow": 2520000,
        "arrPrior": 2280000,
        "sm": 310000,
        "gm": 47
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "arrNow": 4200000,
        "arrPrior": 3800000,
        "sm": 520000,
        "gm": 78
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "arrNow": 6720000,
        "arrPrior": 6080000,
        "sm": 830000,
        "gm": 100
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "Why use last quarter's spend against this quarter's ARR?",
      "a": "Because sales and marketing spend takes time to convert. Lagging the spend by one quarter roughly matches typical B2B sales cycles; if yours runs six months or more, lag by two quarters instead or the number will look worse than reality."
    },
    {
      "q": "What magic number should I aim for?",
      "a": "0.75+ is the common 'spend more' threshold, above 1.0 is excellent and usually means you're underinvesting in growth, and below 0.5 signals a go-to-market efficiency problem to fix before adding budget."
    },
    {
      "q": "Should net new ARR include expansion?",
      "a": "Use net new ARR including expansion and net of churn if you want the honest efficiency picture, since retention spend often sits inside the S&M line. Some teams also compute a new-logo-only version to separate acquisition efficiency from expansion efficiency — both are useful, just label which you're reporting."
    },
    {
      "q": "How does it relate to CAC payback?",
      "a": "They're two views of the same thing. Magic number is the return per dollar; payback converts it into time. A magic number near 0.75 with 78% gross margin corresponds to roughly 20 months payback, which is at the upper edge of healthy for mid-market SaaS."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/saas-rule-of-40",
    "https://www.revenuelab.fyi/toolbox/saas-net-revenue-retention",
    "https://www.revenuelab.fyi/toolbox/saas-quota-capacity"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — SaaS Magic Number Calculator (https://www.revenuelab.fyi/toolbox/saas-magic-number)"
}