Magic Number

Magic Number compares how sales and marketing spend translates to changes in ARR, taking expansion, contraction, and churn into account.

Magic Number = Net New ARR÷S&M Expenses

Magic Number is a measure of capital efficiency, particularly in sales and customer success. Other efficiency metrics like CAC Payback measure ARR growth from new sales and expansion only, but because Magic Number incorporates contraction and churn, it makes sure the overall business is selling efficiently. Put differently, a company good at sales but poor at retention can hide that in CAC payback numbers, but its true performance will be revealed by evaluating Magic Number, especially as the business scales.

Settings: Segments, Date Range, Date Aggregation, Revenue Type, Trailing Period, S&M Offset, Expense Segments

Stage Conversion Rate

Stage Conversion Rate is the While Pipeline Value sums the total ARR of active opportunities in pipeline, weighted pipeline is weighted based on the current deal stage. Weighted pipeline value is a more accurate estimate of Closed Won ARR based on the current pipeline value.

How do I calculate pipeline?

Let's assume we have the following list of opportunities currently active in our sales process:

‍

Deal Name

Sales Owner

Stage

ARR

ACME Corp. - New Business

Bugs Bunny

Stage 1

$10,000

Bonner Books - Upsell

Bugs Bunny

Stage 2

$25,000

CHOAM - New Business

Daffy Duck

Stage 2

$15,000

Daedalus Research - Upsell

Daffy Duck

Stage 3

$30,000

Bugs Bunny

Electric Enterprise - New Business

Stage 3

$50,000

$20,000

Fabulous Factories - New Business

Daffy Duck

Closed Lost

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The total pipeline for these opportunities is $130,000. Additionally, we can also get pipeline totals for our two sales reps: Bugs Bunny ($85,000) and Daffy Duck ($45,000).

Note that Fabulous Factories - New Business is omitted from this sum, as the stage is marked as "Closed Lost".

We can summarize our pipeline by Stage to understand how much ARR is in each step of the sales process. To summarize the Pipeline ARR by Stage, we generate the following ARR table:

Stage 1 Pipeline

Stage 2 Pipeline

Stage 3 Pipeline

Total Pipeline

$10,000

$40,000

$80,000

$130,000

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While we have the total pipeline value here, we can apply the weightings to more accurately estimate how much of the pipeline ARR will be Closed Won.

What is probability to close?

Probability to Close is a percentage that estimates how much of the ARR that is in a particular stage of a pipeline is expected to be Closed Won. Typically, Probability to Close will be lower in earlier stages of the sales process and higher in later stages of the sales process.

If we multiply the probability to close by the Pipeline ARR, we'll get the Weighted Pipeline ARR value in each stage.

Stage 1

Stage 2

Stage 3

Pipeline ARR ($)

$10,000

$40,000

$80,000

Probability to Close (%)

25%

40%

65%

$2,500

$16,000

$52,000

Weighted Pipeline ARR ($)

Probability to Close assumptions for each stage assume that deals in different stages have a different chance of being won. Deals in Stage 1 are 25% likely to be won, while deals in Stage 2 are 40% likely to be won, and deals in Stage 3 are 65% likely to be won.

After applying the probability to close to the Pipeline ARR, we now have $2,500 in Stage 1, $16,000 in Stage 2, and $52,000 in stage 3, for a total weighted pipeline value of $70,500. This estimate is closer to the real value we expect to have in Closed Won ARR.