Burn Multiple

Burn Multiple: capital efficiency in SaaS

The Burn Multiple tells you how much cash a startup burns to bring in each dollar of new recurring revenue: Burn Multiple = Net Burn / Net New ARR. David Sacks (Craft Ventures) proposed it to answer one question, namely how efficient the growth actually is. The lower the number, the better. Say Q1 net burn was US$ 500k against net new ARR of US$ 400k; that gives a Burn Multiple of 1.25. Be sure to use net new ARR (new + expansion − contraction − churn) rather than gross new, since gross makes efficiency look better than it really is.

Benchmarks and applications

Sacks reads the scale this way: < 1 amazing, 1–1.5 great, 1.5–2 good, 2–3 suspect, > 3 bad. Since 2022, VC investors have weighted efficiency over raw growth now that the ZIRP era is over. The metric turns up in runway analysis, in fundraising calls (a better Burn Multiple tends to win better terms), and in quarterly board reporting next to the Rule of 40 and the Magic Number.

FAQ

Net burn or gross burn? Net burn, meaning operating cash outflow minus inflow. Gross burn leaves revenue out and overstates how inefficient you are.

Negative ARR — what then? When churn outruns new ARR, the Burn Multiple comes out undefined or negative. That's a clear red flag: the company is shrinking while it burns cash.

Quarterly or annual? Track both. The quarterly figure picks up recent shifts in the trend, while the trailing-twelve-month version irons out seasonality and is what investor decks usually show.