SaaS magic number

The magic number asks how much new annualised revenue each dollar of go-to-market spend bought, with a one-quarter lag to allow for the sales cycle.

Reading it:

• Above 1.0 — every dollar of sales and marketing returned more than a dollar of new ARR within a year. Push harder.
• 0.5 to 1.0 — workable. Most B2B SaaS companies live here.
• Below 0.5 — the go-to-market motion is not paying for itself. Fix efficiency before adding spend.

Two variants

The gross magic number uses new ARR only. The net magic number uses net new ARR — new plus expansion minus churn and contraction — which is more representative for companies where a large share of growth comes from the existing base.

For a business with 120% NRR, the net version is the one that matters; the gross version credits sales spend with growth that would have happened anyway.

The lag assumption

The one-quarter offset is a convention, not a law. If your average sales cycle is nine months, a one-quarter lag attributes revenue to the wrong spending period entirely, and the metric will read as noise. Match the lag to your actual cycle length, or use a trailing-twelve-month version, which is less sensitive to the choice.