Burn Multiple
The ratio of net cash burned to net new ARR added, measuring how efficiently a company converts capital into recurring revenue growth. Lower is better.
Burn Multiple Separates Efficient Growth From Expensive Growth
Growth at any cost died in 2022. Burn multiple is the metric that replaced it. It tells you exactly how many dollars you are lighting on fire for every dollar of new ARR. A 1x burn multiple means you are spending a dollar to create a dollar of recurring revenue. A 3x means you are spending three dollars per dollar of ARR. One of those companies survives a downturn. The other does not.
The Formula
Burn Multiple = Net Cash Burned / Net New ARR
Use net burn (total spend minus total revenue), not gross burn. And use net new ARR (new ARR minus churned ARR), not gross new ARR. This gives you the honest picture.
Benchmarks
| Burn Multiple | Rating | Typical Stage |
|---|---|---|
| Under 1x | Amazing | Rare, usually profitable |
| 1x - 1.5x | Great | Efficient growth-stage |
| 1.5x - 2x | Good | Acceptable for high-growth |
| 2x - 3x | Concerning | Needs improvement |
| Above 3x | Bad | Fundamental GTM issues |
Why Burn Multiple Beats Rule of 40 for Early-Stage
Rule of 40 rewards both growth and profitability. But early-stage companies are rarely profitable — they are supposed to be investing in growth. Burn multiple isolates whether that investment is working. You can fail Rule of 40 and still have a great burn multiple if your growth is capital-efficient.
Frequently Asked Questions
How do you calculate burn multiple?
Net cash burned divided by net new ARR. If you burned $3M last quarter and added $1.5M in net new ARR, your burn multiple is 2.0x. Include churn in the net new ARR calculation — if you added $2M gross but churned $500K, net new ARR is $1.5M.
What is a good burn multiple?
Under 1.5x is excellent — you are efficiently converting cash into growth. 1.5x to 2.5x is acceptable for high-growth companies. Above 2.5x means you are burning too much relative to growth. Above 3x is a red flag that your GTM or product has fundamental issues.
