SaaS has three widely-used efficiency metrics, each measuring a slightly different aspect of how well you convert inputs to outputs.
The three metrics
Burn Multiple = net burn / net new ARR Measures total operational efficiency. Best for growth-stage companies where every dollar of spending should be traceable to ARR generation.
Magic Number = net new ARR (this quarter) / S&M spend (last quarter) Measures go-to-market efficiency specifically. Useful for diagnosing whether your sales and marketing motion is working before scaling spend.
Rule of 40 = ARR growth rate % + EBITDA margin % Measures the growth-profitability tradeoff. Used more by late-stage / pre-IPO companies evaluating their sustainable growth trajectory.
When to use each
| Stage | Primary metric | Why |
|---|---|---|
| Seed / pre-PMF | Magic Number | Is the GTM hypothesis working? |
| Series A | Burn Multiple | Is growth efficient enough to scale? |
| Series B+ | Burn Multiple + Rule of 40 | Demonstrate efficiency and durability |
| Pre-IPO / public | Rule of 40 | Compare against public comps |
Combining the metrics
A healthy Series A company might show: Magic Number > 0.75, Burn Multiple < 1.5x, with a clear path to Rule of 40 above 40% as it scales.
Use the Burn Multiple Calculator, Unit Economics Calculator, and Rule of 40 Calculator to build a complete picture of your efficiency.