# SaaS Magic Number Calculator

URL: https://www.paydude.io/resources/tools/magic-number-calculator
Type: Free interactive calculator
Summary: Divide ARR added by the sales and marketing spend that produced it. Above 0.75 means spending more is justified.

The magic number answers one question: would spending more on go-to-market produce proportionally more revenue, or simply cost more?

## Summary

Magic number = ARR added ÷ prior quarter sales and marketing spend. Above 0.75 is the conventional threshold to keep spending. Below 0.5 usually points at conversion or retention, not traffic. It is noisy below roughly $1M ARR.

## Reading the number

**What each band implies**

| Magic number | Reading | Action |
| --- | --- | --- |
| Under 0.5 | Inefficient | Fix the funnel before adding spend |
| 0.5 – 0.75 | Marginal | Proceed carefully; investigate |
| 0.75 – 1.5 | Efficient | Spend more |
| Above 1.5 | Very efficient | You are probably underinvesting |

A magic number of 1.0 means one dollar of spend produced one dollar of annual recurring revenue — recovered in a year, then recurring. That is why 0.75 rather than 1.0 is the usual threshold: even below parity, recurring revenue keeps paying.

## Lag the spend

> **Spend leads revenue:** Compare this quarter's ARR growth against last quarter's spend if that matches your sales cycle. Using the same quarter for both attributes revenue to spend that had not yet had time to work, which makes the number move for reasons that have nothing to do with performance.

## How it differs from CAC

CAC is per customer; the magic number is per dollar. CAC tells you what one customer costs, which matters for pricing and payback. The magic number tells you what the next dollar of budget will produce, which is the question when someone proposes increasing spend.

They can disagree. A low CAC with a poor magic number usually means you are acquiring cheap customers who do not stay or expand.

## Its limits

- **Noisy at small scale.** Below $1M ARR, single deals swing it wildly.
- **Blind to retention.** It counts ARR added, not ARR kept.
- **Quarterly.** Too coarse for fast-moving self-serve businesses.
- **Ignores organic.** Growth arriving without spend inflates the number.

**Efficiency starts with what you keep** Lower payment fees on every dollar of ARR you add. — [See pricing](https://www.paydude.io/pricing)

## Frequently asked questions

### What is a good magic number?

Above 0.75 is the conventional threshold for continuing to invest in go-to-market. Above 1.5 suggests you are underinvesting. Below 0.5 usually means the problem is conversion or retention rather than the top of the funnel.

### How is the magic number different from CAC?

CAC is cost per customer; the magic number is ARR produced per dollar of spend. CAC answers what a customer costs; the magic number answers what the next dollar of budget will return.

### Which quarter's spend should I use?

The one that produced the revenue. If your sales cycle is roughly a quarter, compare this quarter's ARR growth against last quarter's spend. Same-quarter comparison attributes revenue to spend that had not yet worked.

### Is the magic number useful for small companies?

Not very. Below about $1M ARR a single large deal moves it dramatically, so it swings on timing rather than performance. CAC payback is a more stable measure at that scale.