Enter the net new ARR you added this period and how much you spent on sales & marketing the period before to see how efficiently that spend is converting into growth.
Net new ARR = ARR at period end minus ARR at period start, including expansion and net of churn. Use the S&M spend from the period before this one, since sales cycles mean spend takes time to convert into signed revenue. Pick any consistent period — a quarter is the usual choice.
Rule of thumb: above 1.0 is excellent, above 0.75 is good enough to justify investing more in sales & marketing, and below 0.5 usually means something upstream of S&M spend needs fixing first.
Magic Number is net new ARR from this period divided by sales &
marketing spend from the period before it:
net new ARR ÷ prior-period S&M spend. It's a
classic venture-capital shorthand for one narrow question: for every
dollar spent on sales and marketing, how many dollars of new annual
recurring revenue came out the other side? The prior-period lag matters
— a rep hired or a campaign run this quarter mostly shows up in next
quarter's bookings, so comparing this period's growth to last period's
spend is what makes the ratio meaningful rather than misleading.
Unlike the burn multiple calculator, which divides total net cash burn (R&D, G&A, everything) by net new ARR, Magic Number isolates just the sales and marketing dollar — it answers whether the S&M engine specifically is paying for itself, independent of how efficient the rest of the business is.
Above 1.0 is excellent — a dollar of prior-period sales and marketing spend is producing more than a dollar of new annual recurring revenue, a strong signal to invest more in S&M. 0.75 to 1.0 is good and sustainable. Below 0.5 usually means something upstream — pricing, product fit, or the sales motion itself — needs fixing before spending more on S&M.
Sales and marketing spend takes time to convert into signed revenue — a rep hired or a campaign run this quarter mostly shows up in next quarter's bookings. Comparing this period's new ARR to last period's spend accounts for that lag; comparing both from the same period understates efficiency for anything with a sales cycle longer than a few weeks.
Burn multiple divides total net cash burn (including R&D, G&A, everything) by net new ARR, so it measures overall cash efficiency. Magic Number isolates just the sales and marketing dollar, ignoring the rest of the burn — it answers a narrower question: is the S&M engine specifically paying for itself.