SaaS Magic Number Calculator
Measure how much new ARR each sales and marketing dollar produces, with the magic number, the gross margin adjusted variant and the implied CAC payback period.
Last reviewed by the Radiatus Cloud team
Want this done for your business?
Radiatus delivers cloud, security & automation for growing teams.
Does the go to market spend work
The magic number answers one question: for every unit of currency spent on sales and marketing in a quarter, how much new annual recurring revenue arrived in the next one. It is deliberately crude, using figures any company already reports, and that is the point. A business can debate attribution models indefinitely; the magic number cuts through by comparing total spend to total incremental revenue with a one quarter lag to allow for the sales cycle.
Reading the number
Above one means each unit of spend generated more than a unit of new ARR, which is efficient and generally means the right move is to spend more. Between 0.5 and 1 is the normal range for a company at scale and suggests spending steadily. Below 0.5 means the machine is not converting spend into revenue and adding budget will make the problem larger rather than solving it. That is the decision the number exists to inform, and it is why boards ask for it every quarter.
Gross margin changes the picture
The basic formula uses revenue, which implicitly treats every unit of ARR as equally valuable. A business with sixty percent gross margins is buying much less contribution per unit of spend than one with eighty five percent margins, and comparing the two on the unadjusted number flatters the first. The gross margin adjusted variant multiplies new ARR by gross margin before the division, and the difference between the two figures is a useful measure of how much your cost of revenue is eating the efficiency you thought you had.
Related tools
- Incident Impact Calculator — Estimate the cost of a security incident from severity, affected users and downtime hours, with a compliance and trust rating and the response actions each severity level demands.
- Third-Party Risk Assessor — Assess vendor risk based on data access and type.
- Data Breach Cost Estimator — Estimate what a data breach would cost from records exposed, cost per record, days to detect and hours of downtime, split into direct and indirect costs.
- SaaS Risk Heatmap — Pick the SaaS apps your company runs, add your own, and get a heatmap ranking each by data criticality times access scope, with the risk each carries.
Frequently Asked Questions
Why is there a one quarter lag?
Because spend in one quarter produces revenue in the next, once the sales cycle has run. Comparing spend and revenue in the same quarter understates efficiency for any business with a sales cycle longer than a few weeks.
What is a good magic number?
Above 1.0 is efficient and usually argues for increasing spend. 0.5 to 1.0 is the normal operating range at scale. Below 0.5 signals that additional spend is not converting and the problem is upstream of the budget.
Should I use net new ARR or gross new ARR?
Net new, which is new plus expansion minus churn and contraction, is the honest figure because it reflects what the business actually gained. Gross new ARR flatters a company with a churn problem, which is precisely the company most likely to quote it.
How does this relate to CAC payback?
They are two views of the same efficiency. The magic number is roughly the inverse of the payback period expressed in years, before gross margin. The calculator shows the implied payback in months alongside so both framings are available.
Does it work for a company with a long enterprise sales cycle?
Less well. A nine month sales cycle means this quarter’s revenue came from spend three quarters ago, so a one quarter lag misattributes it. Lengthen the lag to match your cycle, or use cohort based CAC payback instead.
Privacy & Security
Everything runs in your browser; nothing is uploaded.
How to Use
Enter quarterly ARR figures and sales and marketing spend to see the magic number and payback period.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
Related Tools
Incident Impact Calculator
BusinessEstimate the cost of a security incident from severity, affected users and downtime hours, with a compliance and trust rating and the response actions each severity level demands.
Third-Party Risk Assessor
BusinessAssess vendor risk based on data access and type.
Data Breach Cost Estimator
BusinessEstimate what a data breach would cost from records exposed, cost per record, days to detect and hours of downtime, split into direct and indirect costs.