Both metrics grade growth efficiency by comparing spend against new recurring revenue. They differ in how much of the company each one holds responsible.
``` Magic Number = (Current Quarter ARR minus Prior Quarter ARR) x 4 / Prior Quarter Sales and Marketing Spend
Burn Multiple = Net Burn / Net New ARR ```
Side by side
| Magic number | Burn multiple | |
|---|---|---|
| Numerator | Annualized new ARR | Net cash burn |
| Denominator | Prior period sales and marketing spend | Net new ARR |
| Scope | Go-to-market only | Entire company |
| Better direction | Higher | Lower |
| Primary audience | Revenue leadership | Board and investors |
| Time lag | One quarter, spend leads revenue | None, same period |
What each metric catches
Magic number catches a deteriorating sales motion early. When acquisition cost rises, cycle length stretches, or win rates slip, the ratio moves within a quarter and points directly at the go-to-market organization.
Burn multiple catches everything else. A company can hold a healthy magic number while burning cash on engineering headcount, overhead, or an expensive services organization. The magic number will look fine to the CRO right up until the board asks why runway is disappearing.
Using both
Run magic number as the operating metric and burn multiple as the reporting metric. When they disagree, the gap between them localizes the problem. A healthy magic number alongside a poor burn multiple puts the cost problem outside the revenue organization. Both weak at once means the acquisition motion is the source and the fix starts there.
Neither metric survives a bad revenue forecast. Both are ratios built on the ARR you actually add in a period, so a quarter that misses plan moves both numbers even when spending followed the plan exactly. Tightening forecast accuracy is what makes either ratio interpretable quarter over quarter, since a planned spend level only makes sense against a revenue number you can predict. Feed both metrics from the same ARR source used in sales forecasting so the board deck and the pipeline review agree on what was added.
Frequently Asked Questions
What is the core difference between the two metrics?
The denominators differ in scope. Magic number divides new ARR by prior period sales and marketing spend, so it isolates the cost of the go-to-market motion. Burn multiple divides total net cash burn by net new ARR, so it includes R&D, general and administrative costs, and every other line that consumes cash. A company can run an efficient sales motion and still burn heavily on product.
Which direction is good for each?
Higher is better for magic number, since it counts revenue produced per dollar spent. Lower is better for burn multiple, since it counts dollars burned per dollar of revenue produced. They move in opposite directions on the same underlying improvement, which is why teams that track both should label the charts carefully.
Can the two metrics contradict each other?
Yes, and the contradiction is informative. A strong magic number with a weak burn multiple means the sales engine works and the cost base around it does not. A weak magic number with an acceptable burn multiple usually means expansion revenue from existing customers is carrying growth while new acquisition struggles.
Which one should a revenue leader own?
Magic number, because every input sits inside the revenue organization. Burn multiple depends on engineering spend, overhead, and working capital that a CRO does not control. Report burn multiple to the board and manage magic number week to week.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like magic number vs burn multiple into prescriptive action for your team.
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