The Magic Number is one question: is your growth efficient?
It answers whether the money you spend on sales and marketing comes back as recurring revenue fast enough to keep spending. One ratio, one decision — but the inputs hide two traps most calculators walk you straight into.
The formula
At its core the Magic Number divides the new recurring revenue you added by the sales and marketing it took to add it. Use the prior period's spend — this quarter's growth was bought with last quarter's money.
Magic Number = Net New ARR ÷ Prior-period S&M
The two traps to avoid
First, the famous ×4. The textbook formula multiplies a quarterly revenuedelta by four to annualise it. If you already think in ARR — as most operators do — the annualising is done, and multiplying again quadruples your number. This calculator takes ARR directly, so there's nothing to multiply. Second, timing: pair this period's net new ARR with the priorperiod's S&M, because spend takes a sales cycle to convert.
What a good number looks like
The Magic Number lands on a simple scale of efficiency. Below 1.0, payback stretches past a year; at 1.0 you recover your S&M in about twelve months; above it, you have room to lean in. Your live result sits on this same scale the moment you enter your numbers.
Highly efficient — Every $1 of S&M returns $1+ of new ARR inside a year. You likely have room to invest more aggressively.
Efficient — Healthy sales efficiency — roughly a one-year payback. Keep investing at this pace.
Below efficient — Workable, but payback is long. Tighten go-to-market and plug retention before pouring in more.
Inefficient — Each $1 of S&M brings back under 50¢ of new ARR. Fix the funnel and churn before scaling spend.
The Magic Number is your payback, inverted
Flip the ratio and you get how long your S&M takes to repay itself: payback in months ≈ 12 ÷ Magic Number. A 1.0 is about a twelve-month payback, a 2.0 about six months, a 0.5 about two years. That's a gross figure in new ARR; divide by your gross margin to reach the profit-based CAC payback investors track. The calculator shows the implied months next to your score.
The cheapest way up is keeping what you bought
Net new ARR is new plus expansion minus churn — so churn drags your Magic Number down twice. You paid sales and marketing to win a customer, then lost the ARR when they left. Buying that revenue back costs far more than keeping it, and the most preventable cause of churn is slow, frustrating support: customers leave after a string of unanswered tickets, not one bad day. Cutting response time and following up at scale lifts the number without spending another dollar on acquisition. See how Selvo's AI agent does it.
