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The magic number measures software as a service (SaaS) companies’ sales efficiency by comparing the net new annual recurring revenue (ARR) for the quarter to the previous quarter's sales and marketing expenses. You can use the magic number to help decide whether you should be investing more in sales and marketing.
Ideally, you can shoot for a magic number of at least 1, which indicates you increase your ARR by $1 for every dollar you spend on sales and marketing. A magic number between .75 and 1 might indicate you’re doing well, but have room for improvement.
A low magic number could tell you it’s time to slow sales and marketing spending until you can increase your sales efficiency. Perhaps you need to figure out how to decrease your churn or customer acquisition cost, or reevaluate your product-market fit.
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