Sales Magic Number (Contracted)

What it measures

The annualized revenue locked in through new contracts and expansions (at the signing or amendment date), net of cost of goods, divided by the cash spend on sales and marketing in the same calendar or fiscal period. Measures the productivity of a dollar spent on sales and marketing in generating durable (contracted, not just activated) revenue.

Why it matters

Magic Number tells you if your sales engine is efficient. A Magic Number below 0.75 means you are spending more on sales and marketing than the contracted revenue you're capturing is worth (after delivery costs); above 0.75, you're operating as a healthy growth company. It's one of the few metrics that directly ties spending to revenue capture and is universally understood by investors and boards.

How to read it

Higher is better, but context matters. A new entrant to a market may have Magic Number 0.4 while learning; a mature SaaS in a known segment should target 0.75+. Declining Magic Number month-over-month signals either rising S&M spend without corresponding revenue capture (wasted spend) or falling new and expansion revenue (market slowdown or product fit). Calculate this metric every month to catch deterioration early.

What good looks like

Watch-outs

• Using bookings instead of annualized CARR. A $100K, five-year deal books as $100K but represents only $20K ARR. If you plug $100K into Magic Number, you inflate the metric and make your sales team look more productive than they are.
• Including all S&M spend without matching periods. If you measure CARR in Q1 but include S&M spend from Q1 plus Q2 payroll, the metric becomes meaningless. Always match numerator and denominator to the same fiscal or calendar period.
• Forgetting to adjust for Gross Margin. Magic Number without margin adjustment conflates COGS with S&M efficiency. If your product is expensive to deliver, Magic Number will be artificially low even if sales are efficient. Always multiply New CARR + Upsell CARR by the gross margin percentage.
• Comparing early-stage to mature company Magic Numbers without context. A pre-product-market-fit startup may have Magic Number 0.2 while still on the right path; a mature SaaS with 0.6 may be in decline. Trend the metric over time within your own company, and benchmark only against competitors at a similar stage.

Worked example