[GTM glossary](/glossary.txt) Burn multiple

GTM Strategy & SaaS Metrics

# 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.

Share term

---

## More related phrases

* [SaaS magic number](/glossary/saas-magic-number.txt)
* [SaaS quick ratio](/glossary/saas-quick-ratio.txt)
* [Annual recurring revenue](/glossary/annual-recurring-revenue.txt)

## Similar phrases

* [Rule of 40](/glossary/rule-of-40.txt)  
The Rule of 40 is a SaaS health check that says a company's revenue growth rate plus profit margin should add up to at least 40 percent.
* [Net new ARR](/glossary/net-new-arr.txt)  
Net new ARR is the change in annual recurring revenue over a period: new customer and expansion ARR, minus churned and contracted ARR.
* [CAC payback period (CAC)](/glossary/cac-payback-period.txt)  
CAC payback period is the number of months it takes for a customer's gross profit to repay the cost of acquiring them.
* [Customer acquisition cost (CAC)](/glossary/customer-acquisition-cost.txt)  
Customer acquisition cost (CAC) is the total sales and marketing spend needed to win one new customer, usually measured over a set period.
* [Sales efficiency](/glossary/sales-efficiency.txt)  
Sales efficiency measures how much revenue a company generates for each dollar spent on sales, showing whether the sales engine is worth scaling.