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The Magic Number measures the efficiency of your go-to-market motion. It was popularized by Lars Dalgaard and later referenced extensively by David Sacks and investors at scale.
The formula
Magic Number = Net New ARR (this quarter) / S&M Spend (prior quarter)
The one-quarter lag is intentional: sales and marketing spend takes time to produce bookings. Using prior-quarter spend captures the actual return on that investment.
At $500k net new ARR and $400k prior-quarter S&M spend: Magic Number = 1.25 — solid, bordering on excellent.
Magic Number benchmarks
| Magic Number | Interpretation |
|---|---|
| > 1.5 | Exceptional — step on the gas |
| 0.75–1.5 | Good — invest steadily in S&M |
| 0.5–0.75 | Marginal — improve efficiency before scaling |
| < 0.5 | Poor — diagnose CAC and close rate issues |
Magic Number vs Burn Multiple
Both measure efficiency, from different angles: - Magic Number: GTM-only efficiency. Net new ARR / S&M spend. Ignores R&D, G&A. - Burn Multiple: Total efficiency. Net burn / net new ARR. Includes all spending.
A company can have a great Magic Number (efficient S&M) but a poor Burn Multiple (overspending on R&D or G&A relative to growth). Both metrics are needed.
When Magic Number matters most
Magic Number is most useful from $1M ARR to $20M ARR — the stage where you're actively scaling a repeatable GTM motion. At very early stage (pre-PMF), it's noise. At growth stage, it's a signal to optimize before Series B.
Investors at Sequoia, a16z, and Bessemer all use variants of Magic Number as a quick filter in SaaS diligence.
Frequently asked questions
What does this calculator do? Calculate your SaaS Magic Number from quarterly net new ARR and prior-quarter S&M spend, with implied CAC and GTM payback period.