Understanding SaaS Magic Number
How we calculate. Magic number = annualized net new ARR ÷ prior S&M spend. The form uses the same arithmetic as the worked examples on this page. See our methodology and accuracy policy.
Real-world scenario: A typical SaaS Magic Number case uses net new arr 250000 and prior s&m spend 400000. Enter the same figures below to reproduce the worked path.
What is SaaS Magic Number?
A sales-efficiency KPI. Distinct from Rule of 40 (growth + profit) and from finance Rule of 72.
- Net new ARR = period net new annual recurring revenue
- × 4 annualizes a quarterly net-new figure
- Prior S&M = sales & marketing spend in the prior period
The Formula
Worked Example
Common Use Cases
- Sales efficiency: hire vs hold
- Board packs: magic number trend
- Budgeting: S&M ROI proxy
Pro Tips
- State quarterly vs monthly inputs
- Don’t confuse with Rule of 40
- Freeze net-new ARR definition
Limitations: SaaS Magic Number results are educational SaaS / subscription planning aids—not accounting, tax, or investment advice. Confirm definitions with your billing system and board reporting standards.
FAQ
Same as Rule of 40?
No. Rule of 40 is growth % + profit margin %. Magic number is annualized net new ARR ÷ prior S&M spend.
What if prior S&M spend is 0?
Magic number is undefined—enter positive prior S&M spend.
Authoritative References
For SaaS metrics and subscription performance concepts, consult:
- SaaStr — SaaS growth and metrics context
- For Entrepreneurs — SaaS metrics explainers
- Bessemer Venture Partners — cloud / SaaS industry research