Quick answer
Burn multiple is a capital-efficiency metric equal to net cash burn divided by net new annual recurring revenue over the same period. It shows how much a company spends to add each dollar of ARR; lower is better.
Formula: Burn multiple = net burn ÷ net new ARR
What is burn multiple?
Burn multiple measures how much cash a company burns to add each dollar of new annual recurring revenue. It was popularized by investor David Sacks in 2020 as a simple test of growth efficiency for startups that are still losing money.
Burn multiple = net burn ÷ net new ARR- Net burn: cash out minus cash in over the period (operating losses, ignoring financing).
- Net new ARR: new ARR plus expansion, minus churned and contracted ARR, over the same period. See annual recurring revenue.
A burn multiple of 2 means the company spent $2 of net cash for every $1 of ARR it added. Lower is better.
How to interpret it
Sacks' original guide:
| Burn multiple | Rating |
|---|---|
| Under 1 | Amazing |
| 1–1.5 | Great |
| 1.5–2 | Good |
| 2–3 | Suspect |
| Over 3 | Bad |
Early-stage companies often run higher multiples while they find product-market fit; investors tend to look for the trend falling as the company scales.
Worked example
A SaaS company over four quarters (sample data, $ thousands):
| Quarter | Net burn | New + expansion ARR | Churned + contracted ARR | Net new ARR | Burn multiple |
|---|---|---|---|---|---|
| Q1 | 2,400 | 1,100 | 300 | 800 | 3.0 |
| Q2 | 2,200 | 1,250 | 250 | 1,000 | 2.2 |
| Q3 | 1,900 | 1,350 | 200 | 1,150 | 1.65 |
| Q4 | 1,800 | 1,400 | 200 | 1,200 | 1.5 |
| Year | 8,300 | 5,100 | 950 | 4,150 | 2.0 |
The quarterly figures move from "bad" to "good" as burn falls and churn improves. Notice that reducing churned ARR from 300 to 200 helped as much as adding new sales: the formula uses net new ARR, so retention is a direct lever. Quarterly numbers are noisy; a trailing four-quarter figure (2.0 here) is steadier.
What drives burn multiple
| Lever | Effect |
|---|---|
| Lower CAC or shorter CAC payback | Same ARR for less spend |
| Higher net revenue retention | More expansion, less churn, so more net new ARR per dollar |
| Better gross margin | Less burn per customer served |
| Pricing and packaging | Higher ARR per customer acquired |
| Lower fixed overhead | Less burn not tied to growth |
Burn multiple vs related efficiency metrics
- Rule of 40: growth rate plus profit margin; works for profitable and unprofitable companies.
- SaaS magic number: net new ARR (or quarterly revenue change × 4) divided by the previous quarter's sales and marketing spend; isolates go-to-market efficiency.
- SaaS quick ratio: gained MRR divided by lost MRR; ignores costs.
- Burn multiple covers the whole company's spending, not just sales and marketing, which is its strength and its weakness: R&D investment for future products raises it today.
Common mistakes
- Using bookings or revenue instead of net new ARR. One-off services revenue is not recurring.
- Ignoring churn. Gross new ARR flatters the ratio.
- Comparing companies at different stages without context.
- Reading one quarter. Use trailing twelve months for decisions.
Measuring the inputs
Net new ARR comes from billing data, but the drivers behind it, such as activation, retention by cohort, expansion usage and churn signals, come from product analytics. In TapCub, revenue events and retention by cohort show which customer groups expand or churn, which is where most burn-multiple improvements come from. See SaaS metrics and monthly recurring revenue.
Sources
- Sacks, D. (2020). The burn multiple.
- Wall Street Prep. Burn multiple: formula and calculation.
- Bessemer Venture Partners. Scaling to $100 million.
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Data Engineer
Writes about event design, data quality, and collection workflows, with verifiable implementation methods for reliable analytics.