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Burn Multiple is one of the most important capital efficiency metrics in SaaS. It was popularized by David Sacks and measures how much you're spending to generate each dollar of net new ARR.
The formula
Burn Multiple = Net Cash Burn ÷ Net New ARR
At $3M annual net burn and $2M net new ARR: Burn Multiple = 1.5×
This means you spend $1.50 in cash to generate $1 of recurring revenue.
Net burn vs gross burn
Gross burn: Total cash spent per period (all expenses) Net burn: Gross burn minus revenue collected
Burn Multiple uses net burn because it accounts for the revenue you're already collecting. A company at $5M gross burn but $3M in revenue collection has $2M net burn — and the burn multiple reflects actual capital efficiency.
Burn Multiple benchmarks
| Burn Multiple | Interpretation |
|---|---|
| < 0 | Generating ARR faster than burning cash — exceptional |
| 0–1× | World-class capital efficiency |
| 1–1.5× | Excellent — top quartile |
| 1.5–2× | Good — acceptable for rapid growth |
| 2–3× | Borderline — investors will flag at Series B |
| > 3× | Concerning — significant capital efficiency problem |
Why burn multiple matters more than burn rate alone
A $500k/month burn rate tells you nothing without context. Is it generating $500k/month in new ARR, or $100k/month? The first is fine; the second is burning 5× for every dollar of ARR — a serious problem.
Burn Multiple gives the context. Two companies with the same burn rate might have very different capital efficiency depending on their growth velocity.
Burn Multiple and the Rule of 40
Both metrics assess SaaS efficiency, but from different angles: - Rule of 40: Revenue growth + EBITDA margin ≥ 40 (operating efficiency of the P&L) - Burn Multiple: Cash burn / net new ARR (capital efficiency of growth spending)
A company can pass Rule of 40 but have a poor burn multiple if it's growing with unsustainable cash spending relative to ARR additions.
How to improve burn multiple
- Reduce CAC — more ARR from the same S&M spend
- Reduce churn — net new ARR improves when churned ARR falls
- Increase ACV — same headcount, higher ARR per deal
- Expand existing customers — expansion ARR requires near-zero additional burn
- Automate operational work — reduce gross burn without cutting growth investment
Frequently asked questions
What does this calculator do? Calculate burn multiple from net burn and net new ARR, plus runway and implied CAC from cash on hand and new customers.