The SaaS Magic Number: Are You Growing Efficiently?

The SaaS Magic Number is one of the most important metrics founders and investors use to evaluate how efficiently a SaaS company converts sales and marketing spend into recurring revenue growth.

Rapid growth means nothing if it burns cash faster than revenue compounds. This metric reveals whether scaling is sustainable or dangerously inefficient.

How the SaaS Magic Number Works

Magic Number =
(Current Quarter ARR − Previous Quarter ARR)
------------------------------------------------
Previous Quarter Sales & Marketing Spend

Benchmarks That Matter

• 1.0+ — elite efficiency
• 0.75–1.0 — healthy growth
• 0.5–0.75 — caution zone
• <0.5 — inefficient growth

How to Improve Your Magic Number

1. Shorten sales cycles
2. Increase expansion revenue
3. Improve onboarding & activation
4. Focus spend on highest-LTV segments