Growth Metrics

Magic Number

A sales efficiency ratio measuring how much new ARR is generated for every dollar spent on sales and marketing.

The Magic Number answers: is our sales and marketing investment efficiently converting to recurring revenue? It calculates new ARR in a quarter divided by the prior quarter's sales and marketing spend. A Magic Number above 1.0 means every dollar spent on sales and marketing generates more than one dollar of annualised recurring revenue — a strong signal of efficiency. Between 0.5 and 1.0 is acceptable, suggesting the go-to-market is working but has room to improve. Below 0.5 warrants concern that the sales motion is inefficient or the market is not responding. The Magic Number is most useful as a trend metric — watching whether it improves or deteriorates as the company invests more in growth reveals whether the go-to-market machine is scaling or stalling.