Financial
SaaS Rule of 40, Magic Number, and Burn Multiple formulas
Benchmark SaaS growth efficiency using Rule of 40 (Growth % + FCF Margin %), Go-to-Market Magic Number, and Capital Burn Multiple.
Three investor efficiency benchmarks that balance hypergrowth against cash burn
Rule of 40 combines growth and a specified profitability margin; 40 percentage points is an illustrative benchmark.
The ARR-based sales-efficiency proxy and burn multiple use net new ARR with different cost denominators. Thresholds vary by context and business stage.
| SaaS Efficiency Metric | Formula | Example result |
|---|---|---|
| Rule of 40 (32% Growth + 14% FCF) | =A2 + B2 | 46.0% (>= 40% Pass!) |
| SaaS Magic Number ($600k New ARR / $500k S&M) | =(D2 - C2) / E2 | 1.20x |
| Burn Multiple ($750k Net Burn / $600k New ARR) | =F2 / (D2 - C2) | 1.25x |
Rule of 40, Magic Number, and Burn Multiple formulas
When inputs are Quarterly GAAP Revenue instead of ARR, multiply (CurrQtrRev - PriorQtrRev) * 4 in the Magic Number numerator to annualize.
=ROUND(A2 + B2, 4)SaaS Magic Number (Net New ARR / Prior Quarter Sales & Marketing)
Measures dollars of new annualized recurring revenue created per $1.00 of prior-quarter S&M spend.
=ROUND((D2 - C2) / E2, 2)Additional worked calculation
Using the initial example inputs:
=ROUND(F2 / (D2 - C2), 2)Inputs and interpretation
These are descriptive SaaS metrics with context-dependent benchmarks, not pass/fail investment rules. Define the margin measure and reporting periods consistently. The ARR-based efficiency proxy is not identical to annualizing quarterly GAAP revenue growth. Require positive prior sales/marketing spend and positive net new ARR for the usual burn-multiple interpretation. Net burn is positive cash outflow under this convention.
Try the example
Use the original values or change them to test your understanding.