Burn multiple
Also known as: burn rate multiple
In short
Burn multiple is net cash burned in a period divided by net new ARR added in that period. It answers how many dollars the company spends to add one dollar of recurring revenue.
A lower number is more efficient. Because it combines spending and growth in one figure, it is used by founders and investors to judge whether growth is being bought at a sustainable price.
How to calculate burn multiple
- Formula: Burn multiple = net burn / net new ARR.
- Example: Say a company burns 2 million in a year and adds 1 million in net new ARR. Burn multiple is 2, meaning it spends 2 for each 1 of new ARR.
- Net new ARR: New plus expansion ARR, minus contraction and churn.
How to read it
There is no universal threshold, so avoid copying benchmarks from elsewhere. Compare your own number over time and against your stage, market, and cash runway. A burn multiple that is rising while growth slows signals that spending is outpacing results.
What drives it
Sales and marketing efficiency
Higher acquisition cost or a longer CAC payback period raises the multiple.
Retention
High churn reduces net new ARR, so the same spend produces less growth.
Non-GTM spending
Engineering and overhead count in net burn, so product investment shows up too.
Burn multiple vs. related metrics
- Sales efficiency: Compares new ARR with sales and marketing spend only.
- CAC payback: Measures months to recover acquisition cost for each customer.
- Rule of 40: Balances growth rate and profit margin.
Common mistakes
- Using gross new ARR: Ignoring churn flatters the result.
- Reading one quarter alone: Lumpy deals swing the figure. Use a trailing twelve-month view.
- Optimizing the ratio only: Cutting spending can improve it while stalling growth the business needs.
Burn multiple FAQs
What is the burn multiple?
Burn multiple is net cash burned divided by net new ARR over the same period. It shows how many dollars a company spends to add one dollar of annual recurring revenue, so a lower number means more efficient growth.
How do you calculate burn multiple?
Divide net burn by net new ARR for the period. For example, burning 2 million while adding 1 million of net new ARR gives a burn multiple of 2. Net new ARR includes expansion and subtracts churn and contraction.
What is a good burn multiple?
It depends on stage, market, and cash position, so a single threshold is misleading. Lower is better, and the most useful comparison is your own trend over time against your growth plan and how long your cash lasts.
What is the difference between burn multiple and burn rate?
Burn rate is how much cash a company loses per month. Burn multiple divides that burn by the new recurring revenue it produced, so it measures efficiency instead of just spending level.
