What Is a Burn Multiple?
A burn multiple is net burn divided by net new ARR. It answers one question: how many dollars does the company burn to add one dollar of new annual recurring revenue?
A burn multiple of 2 means you spent $2 for every $1 of net new ARR you added. A burn multiple of 0.8 means you added a dollar of ARR for 80 cents. Lower is better, which is the opposite of how most growth metrics read.
It is a capital efficiency measure, not a growth measure and not a runway measure. Two companies can grow at the same rate and have very different burn multiples, and the one with the lower number is building a more durable business.
Why Does a Burn Multiple Matter for SaaS Companies?
Growth rate on its own says nothing about what the growth cost. A company can double revenue and still be a poor investment if it burned four dollars to do it. The burn multiple puts the cost and the result in the same ratio.
That is why investors reach for it early in diligence. It is hard to flatter. Revenue growth can be bought, and burn can be presented favorably in isolation, but the ratio between them is difficult to dress up.
It is also useful internally, and this is where most teams underuse it. Tracked quarterly, a rising burn multiple is an early warning that spend is getting less efficient, and it usually shows up well before it appears in the runway forecast.
Burn Multiple Formula
The formula was defined by David Sacks of Craft Ventures in 2020, to measure how efficiently a company grows rather than simply how fast.
Burn Multiple = Net Burn / Net New ARR
Net burn is cash out minus cash in over the period, not gross spend. Net new ARR is new ARR plus expansion, minus churn and contraction. Both halves are net, and getting either one gross is the most common way this calculation goes wrong.
Use the same period for both. Most SaaS companies run it quarterly, because a single month is noisy enough that the number swings on the timing of one large renewal.
How to Calculate a Burn Multiple
Take net burn for the period. If you started the quarter with $4.0M in the bank and ended with $3.4M, having raised nothing, net burn is $600k.
Take net new ARR for the same period. If ARR went from $2.0M to $2.3M, net new ARR is $300k. That figure is already net of churn, because it is the movement in the ARR balance.
Divide. $600k / $300k = 2.0.
Two things to watch. If ARR went backwards, the burn multiple is not meaningful for that period, so report the ARR decline instead of a negative ratio. And if you raised money during the period, exclude the raise from net burn, since financing is not operating cash flow.
A Quick Burn Multiple Example: What Is a Good Burn Multiple for SaaS Companies?
A company with $100k of monthly net burn and $50k of net new ARR has a burn multiple of $100k / $50k = 2.0. For every dollar it burns, it adds 50 cents of recurring revenue.
That sounds alarming until you account for how software is valued. If the business trades at 6x ARR, then 50 cents of new ARR is worth about $3 of enterprise value, created for $1 of burn. Whether that trade is worth making depends on your cost of capital and how durable the revenue is.
Sacks published a benchmark table that is still the reference point:
Under 1x is amazing. 1x to 1.5x is great. 1.5x to 2x is good. 2x to 3x is suspect. Above 3x is bad.
Early-stage companies sit higher and that is normal, because the first dollars of ARR are the most expensive to win. The number to watch is the direction. A burn multiple falling quarter over quarter is the signal that the model is working. One climbing while growth stays flat means you are paying more for the same result, and that is worth catching before the next raise rather than during it.