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Sales and marketing efficiency measures how much revenue you generate based on your sales and marketing expenses.
You can calculate your S&M efficiency by dividing your gross revenue or gross new annual recurring revenue (ARR) by your sales and marketing expenses for the period. As a rule of thumb, having a sales and marketing efficiency of at least 1 is an indicator that your business is efficiently using its sales and marketing budget.
Some software as a service (SaaS) companies also use the magic number to measure sales efficiency. Rather than using gross revenue, the magic number compares a company’s net new ARR for the quarter to the previous quarter's sales and marketing expenses.
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