HesapHanem

Magic Number Payback Calculator

Enter current and prior ARR with S&M spend to get the magic number and payback.

How it is calculated

The tool takes three amounts in dollars: ARR at the end of the current quarter, ARR at the end of the prior quarter, and the sales and marketing (S&M) spend of the prior quarter. Net new ARR is current ARR − prior ARR and the magic number is net new ARR ÷ S&M spend. Both ARR figures are already annualised, so the difference is not multiplied by 4. CAC payback is 12 ÷ magic number months. It ignores gross margin, so a business with lower margins really takes longer to pay back. S&M spend must be above zero and ARR cannot be negative, otherwise there is no result. When net new ARR is zero or negative the payback is shown as a dash and net new ARR is printed with a minus sign, for example -$300,000.00.

Worked example

Suppose ARR rose from 4,800,000 to 5,400,000 in one quarter and the previous quarter's sales and marketing spend was 900,000. Net new ARR is 5,400,000 − 4,800,000 = $600,000.00. The magic number is 600,000 ÷ 900,000 = 0.67. Payback is 12 ÷ 0.667 = 18.0 months, which the tool prints as 18.0 mo. In plain terms, each dollar of S&M spend produced about 67 cents of new annual recurring revenue, and it takes about a year and a half of that revenue to earn back the spend.

Try this example →

Common mistakes

  • Entering quarterly revenue instead of ARR. The tool does not multiply by 4, so a quarterly revenue difference makes the magic number and payback look four times worse than they are.
  • Using the current quarter's S&M spend. The measure pairs this quarter's ARR growth with the prior quarter's spend, because spend takes time to convert into revenue.
  • Counting expansion or churn inconsistently. The ARR difference is net, so a heavy churn quarter can give a negative magic number even if new sales were strong.
  • Reading the payback as a gross-margin payback. The figure is revenue-based, so for a business with, say, 70% gross margin the real recovery time is longer.
  • Entering monthly spend or half-year spend. The S&M amount must cover exactly one quarter.

About this calculator

The SaaS magic number, popularized by venture firms like Bessemer Venture Partners, measures sales and marketing efficiency by comparing the quarter-over-quarter growth in annualized recurring revenue against the prior quarter's S&M spend: (current ARR − prior ARR) ÷ prior quarter S&M spend. ARR is already annualized, so no extra ×4 is applied. A magic number above roughly 0.75 is generally read as a signal to invest more aggressively in growth, while a lower number suggests spend isn't translating efficiently into new recurring revenue.

This calculator takes your current and prior quarter ARR along with S&M spend, and returns the magic number, the net new ARR and the implied CAC payback period in months (12 ÷ magic number, not shown when the magic number is zero or negative) — how long it takes new revenue to recoup the cost of acquiring it. SaaS finance and revenue operations teams, founders preparing board decks, and venture investors evaluating growth efficiency use these two numbers together as a quick gut-check on whether a company's go-to-market spend is actually working.

Was this helpful?

You can pick up to 3 reactions.

Comments

  • Be the first to comment.

Popular calculators

Loan Calculator

Monthly payment, total interest and full amortization schedule.

Percentage Calculator

Percent change, percent of, and ratio calculations.

Discount Calculator

Calculate final price, savings, and discount amount.

BMI Calculator

Body mass index from height and weight (metric or imperial).

Age Calculator

Compute your exact age in years, months and days from a birth date.

Compound Interest Calculator

Calculate the final amount and interest earned with compounding.

All Calculators