GTM Glossary · Metrics
Gross-Margin-Adjusted Magic Number
The Magic Number recalculated on gross profit rather than revenue, so delivery cost is not hidden.
[01]What It Means
New ARR is multiplied by the gross margin before dividing by sales and marketing spend. A company reporting a comfortable 0.85 on a 62% margin is actually running near 0.53 once hosting, support and onboarding are counted.
[02]Why It Matters
Service-heavy platforms and everything sold with implementation look efficient on the standard measure and unprofitable on this one. In European enterprise deals, where onboarding is often bespoke, the gap is wide enough to change a hiring decision.
[03]Where It Goes Wrong
Reporting the unadjusted number to the board and the adjusted one to nobody.Excluding customer support and technical onboarding from cost of goods sold.Improving the ratio by under-serving customers, which shows up later in churn.
[04]Related Terms