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Efficiency Score
The ratio of net new ARR to sales and marketing spend, measuring how efficiently growth investment converts to revenue.
Formula
Efficiency Score = Net New ARR ÷ Sales & Marketing Spend
Also called CAC Efficiency or S&M Efficiency
>1.0 is excellent, 0.5-1.0 is good, <0.5 needs improvement
Definition
What is Efficiency Score?
Efficiency score measures how much new ARR you generate for each dollar spent on sales and marketing. An efficiency of 0.8 means every $1 of S&M spend produces $0.80 of new ARR. Above 1.0 means you're generating more ARR than you're spending.
This metric is closely related to Magic Number but uses annual instead of quarterly figures.
Why Efficiency Score Matters
In growth-at-all-costs mode, efficiency takes a backseat. In capital-efficient or profitability-focused environments, efficiency determines whether growth is sustainable.
High efficiency means you can grow faster on less capital, extending runway and reducing dilution from fundraising.
Improving Efficiency
Improve conversion rates at each funnel stage. Increase deal sizes without proportionally increasing sales costs. Build organic acquisition through product virality and content. Reduce CAC through product-led growth motions.
Example
Annual efficiency calculation:
- Net New ARR: $2,000,000
- Sales & Marketing spend: $3,500,000
Efficiency Score = $2,000,000 ÷ $3,500,000 = 0.57
For every $1 spent on S&M, you generated $0.57 in new ARR. Good but not great. Above 1.0 is excellent efficiency.
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