Magic Number
Measures sales efficiency: net new ARR divided by sales and marketing spend in the prior period.
Definition
The magic number is a sales efficiency metric calculated as net new ARR in a quarter divided by the prior quarter's sales and marketing spend. A magic number above 0.75 suggests efficient growth and justifies increasing sales spend. Below 0.5 suggests the go-to-market engine is inefficient. It helps determine whether a company should invest more in sales and marketing or focus on improving unit economics first.
Why it matters
A high magic number means the company can grow efficiently, which extends runway and reduces dilution. A low magic number may lead to cost cuts, especially in sales, which can signal trouble.
Example
A company spent $2M on sales and marketing last quarter and added $1.8M in net new ARR this quarter. Magic number = $1.8M / $2M = 0.9. This indicates strong sales efficiency and the company should continue scaling sales spend.