Burn Multiple
Last updated: Nov 28, 2025
What is Burn Multiple?
Burn Multiple is a capital efficiency metric that measures how many dollars a startup burns (spends) to generate each dollar of net new Annual Recurring Revenue (ARR). Calculated as Net Burn divided by Net New ARR, this metric evaluates the cost-effectiveness of revenue growth. A higher Burn Multiple indicates the company is spending more capital per dollar of growth, while a lower Burn Multiple indicates more efficient, capital-efficient growth.
Burn Multiple Formula
How to calculate Burn Multiple
A startup ends Q1 having burned $2M (net cash decrease from operations) while adding $1M in net new ARR. The Burn Multiple is $2M / $1M = 2.0x—reasonable for early-stage companies. If another company burned $5M to add $1M net new ARR, that's a 5.0x Burn Multiple—signaling serious efficiency problems. This company is spending like a growth-stage business without delivering commensurate growth and should likely reduce costs immediately.
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What is a good Burn Multiple benchmark?
For SaaS companies by ARR stage (median Burn Multiple): $1-3M ARR: 1.7x $3-5M ARR: 1.0x $5-10M ARR: 0.65x $10-15M ARR: 0.85x Source: Capchase 2022, n=439 Note: The slight increase at $10-15M ARR may reflect increased investment in scaling operations and go-to-market infrastructure as companies prepare for later-stage growth.
Burn Multiple benchmarks
How to visualize Burn Multiple?
A summary chart is the best way to visualize Burn Multiple. Summary Charts display the current value in comparison with the past. Take a look at the example:
Burn Multiple visualization example
Summary Chart
Burn Multiple
Chart
Measuring Burn MultipleMore about Burn Multiple
Venture capitalists use Burn Multiple to assess the quality of product-market fit and the sustainability of growth. A startup that generates $1M in net new ARR while burning $2M (2x Burn Multiple) demonstrates stronger product-market fit than one burning $5M for the same growth (5x Burn Multiple). In the former case, efficient growth suggests the market is "pulling" the product, while the latter suggests the company is "pushing" expensive customer acquisition.
The power of Burn Multiple lies in its comprehensiveness—it's a catch-all metric that captures operational efficiency across the entire business. Any significant problem (poor sales efficiency, high churn, operational bloat, ineffective marketing) will eventually surface in the Burn Multiple by increasing burn, decreasing net new ARR, or both.
Important Considerations:
- Pre-revenue companies: When net new ARR is zero or negative, the Burn Multiple becomes undefined or negative. In these cases, focus on minimizing burn and achieving initial revenue ("crossing the Penny Gap") as quickly as possible.
- Mature companies: As startups scale and approach profitability, the Burn Multiple should trend toward zero. At breakeven, burn reaches $0, making the Burn Multiple 0.
- Seasonal variations: Calculate Burn Multiple over consistent periods (typically quarterly) and watch for trends rather than single data points.
- Context matters: A high Burn Multiple may be acceptable temporarily if the company is investing strategically in growth infrastructure, but sustained high multiples signal inefficiency.
Burn Multiple Frequently Asked Questions
What's a "good" Burn Multiple, and does it vary by stage?
A "good" Burn Multiple varies significantly by company stage and growth rate. As a general rule:
- Early-stage (Seed to Series A): 1.5x - 3x is acceptable as you're proving product-market fit
- Growth-stage (Series B+): <1.5x is ideal, with best-in-class companies achieving <1x
However, context matters enormously. A company burning 3x to grow 200% YoY may be making a smart investment, while the same 3x multiple with 50% growth signals problems. High-growth companies often justify higher Burn Multiples temporarily, especially when:
- Investing ahead of growth (hiring sales teams before they're fully productive)
- Building infrastructure for scale (engineering, systems, operations)
- Expanding into new markets or segments
The key is trajectory: your Burn Multiple should improve over time as you achieve scale efficiencies, not worsen. If it's consistently rising, investigate whether you're losing product-market fit or becoming operationally inefficient.
How does Burn Multiple differ from other efficiency metrics like CAC Payback Period or Magic Number?
While these metrics all measure efficiency, they focus on different aspects:
- Burn Multiple: Holistic, company-wide efficiency. Captures total capital consumption (all expenses) relative to ARR growth, including sales, marketing, product development, operations, and overhead. Best for overall health assessment.
- CAC Payback Period: Sales & marketing efficiency only. Measures how long it takes to recoup customer acquisition costs, focusing specifically on go-to-market effectiveness. Best for evaluating S&M spend efficiency.
- Magic Number: Sales & marketing ROI. Shows how much ARR growth you generate per dollar of S&M spend (calculated as Net New ARR / S&M Spend in prior quarter). Best for quarter-over-quarter S&M efficiency.
The advantage of Burn Multiple is comprehensiveness—a company might have great Magic Number and CAC metrics but terrible Burn Multiple due to engineering bloat, excessive overhead, or operational inefficiency. Conversely, you might optimize Burn Multiple while missing that your S&M efficiency is declining. Use all three together for complete visibility: Magic Number and CAC Payback for go-to-market, Burn Multiple for overall capital efficiency.
Can Burn Multiple be negative or undefined, and what does that mean?
Yes, and these scenarios reveal important business conditions:
Negative Burn Multiple occurs when:
- Net burn is negative (profitable/cash-generating) AND net new ARR is positive → Excellent! You're growing profitably. The metric becomes less meaningful here since you're no longer burning capital.
- Net burn is positive (burning cash) AND net new ARR is negative (shrinking) → Crisis. You're losing customers while spending money. The negative number mathematically understates the severity—you're burning cash without growth.
Undefined/Infinite Burn Multiple occurs when:
- Net new ARR is zero or near-zero → Common pre-revenue or during plateaus. Focus on absolute burn rate and runway instead. Your goal is to achieve any positive ARR growth to make the metric calculable.
Practical guidance: When Burn Multiple becomes negative or undefined, pivot to these metrics:
- Pre-revenue: Track absolute monthly burn and months of runway
- Declining ARR: Focus on churn analysis, customer health, and potentially path to profitability
- Profitable growth: Celebrate, but track CAC Payback and Growth Rate instead
The goal is to maintain a positive, declining Burn Multiple that eventually reaches zero at profitability.
Recommended resources related to Burn Multiple
Read about Burn Multiple from David Sacks.Contributor
