What is the magic number?
The magic number is a software sales-efficiency measure: new annualized recurring revenue in a quarter divided by the prior quarter's sales and marketing spend. The one-quarter lag reflects the time between spending money and seeing revenue from it. A result of 1 means each dollar of sales and marketing spend added a dollar of annualized recurring revenue.
Why it matters to a revenue leader
The magic number tells a board whether putting more money into sales and marketing will pay back. A high reading supports adding sellers; a low one suggests fixing conversion, pricing or ramp before adding cost. For a revenue leader, it ties the hiring plan to evidence, and boards often check it when a team asks for more headcount.
How to calculate it
Magic number = (Current quarter recurring revenue - Prior quarter recurring revenue) x 4 / Prior quarter sales and marketing expense.
Common mistake: using total revenue that includes services and one-time fees, which overstates efficiency.
Example
Fictitious numbersQuarterly recurring revenue grows from $2.0 million to $2.3 million. Annualized, that is $1.2 million of new recurring revenue. Sales and marketing spend in the prior quarter was $1.5 million, so the magic number is 0.8.
"What has our magic number been for the last four quarters, and is it rising or falling as we add sellers?"
Sources
- The SaaS Magic Number: A Guide to Calculation and Analysis checked 9 Oct 2026