Formula
(Current Quarter ARR - Prior Quarter ARR) x 4 / Prior Quarter S&M Spend
How to measure
Annualize the quarter-over-quarter ARR increase, then divide by the sales and marketing spend from the prior quarter that presumably generated it.
Why track it
A magic number above 0.75 generally justifies increasing sales and marketing investment; well below that suggests spend is outrunning returns.
Example
A company gaining $100,000 in net new ARR (annualized to $400,000) against $500,000 in prior-quarter S&M spend has a magic number of 0.8.