SaaS 2028 Magic Number
Magic Number = (Q New ARR × 4) / Q-1 S&M Spend. >1 = double-down on sales. 0.5-1 = sales efficiency needs work. <0.5 = step back, fix funnel.
| Q new ARR (annualized) | — |
| Prior Q S&M spend | — |
| Magic Number 2028 | — |
| Sales decision | — |
SaaS Magic Number: (Quarterly new ARR × 4) / Prior Quarter Sales+Marketing Spend. Coined by Scale Venture Partners 2008. >1 = sales efficient enough to scale aggressively. 0.5-1 = optimize current; 0.5< = fix funnel before scaling. Best paired with CAC Payback for full picture.
Magic Number Mechanics
Annualizes one quarter's new ARR (×4) and compares to prior quarter's full S&M spend. Lag indicator: gives time for deals closed this quarter to reflect prior quarter's pipeline-building spend. Net new ARR (post-churn) for tightest accuracy.
When to Scale Hire
Magic Number >1 sustained 2+ quarters = scale sales/marketing aggressively. Below 0.5 = pause hiring, fix marketing funnel, retrain SDR team, fix onboarding leakage. Common 2028 scenario: AI-content firms scaling marketing without sales attribution discipline.
Limitations
One-quarter snapshot. Long sales cycle deals distort timing (Q3 spend → Q4 close). Brand marketing investments take 3-6 months to show in pipeline. Use 4-quarter trailing for stable read.
Last updated May 2026. Sources: Scale VP.