The magic number answers one question: would spending more on go-to-market produce proportionally more revenue, or simply cost more?
Fees & Pricing
The customers you lose without anyone deciding to leave.
SaaS Magic Number Calculator
How much annual recurring revenue each dollar of sales and marketing buys.
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Fully loaded: salaries, commission, ads, tools
Spend should lead the revenue it produced. If your sales cycle is three months, compare this quarter's ARR growth against last quarter's spend, not the same quarter's.
Magic number0.8Efficient — spending more is justified
- ARR added
- $400,000
- Spend
- $500,000
- Cost per $1 of ARR
- $1
- Spend recovered in
- 1.3 quarters
Above 0.75 the conventional reading is that go-to-market is working and more spend should produce proportionally more revenue. At 0.8, every dollar spent buys $1 of annual recurring revenue.
The magic number is a quarterly measure and noisy at small scale. Below roughly $1M ARR it swings so much on single deals that it is rarely worth acting on.
Reading the number
| 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
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.
GOOD QUESTIONS
Frequently asked
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.