ARR is not reported by public companies and private company ARR numbers are often suspect. Our workaround was to slightly tweak the calculation for Net SE, replacing the numerator (Net New ARR) with the intra-quarter difference in GAAP revenue multiplied by 4 (annualized). We call this formula using GAAP instead of ARR the Magic Number and it should be equal to Net Sales Efficiency with a one quarter lag (to allow ARR to convert to GAAP).

As a rule of thumb: when you’re talking to your team and want to keep it simple, talk Gross and Net Sales Efficiency; when you want to do benchmarking against other companies, use Magic Number.

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