Burn multiple

Formula

Net burn / net new ARR

Unit

ratio (lower better)

Models

SaaS, Usage-based

What it is

Burn multiple measures capital efficiency: how many dollars of net cash is burned for each dollar of net new ARR generated. The formula is Net burn / Net new ARR. A lower number means the business is generating ARR more cheaply.

How to calculate it

Divide the net cash burned over a period (typically a quarter or year) by the net new ARR added in the same period. Net burn is cash out minus cash in from operations; net new ARR is new ARR plus expansion minus churn. Both figures should cover the same time window.

Why it matters

Burn multiple directly measures whether a company is spending its way to growth efficiently. It is particularly useful for early-stage SaaS and usage-based businesses where ARR is the primary output. Unlike burn rate alone, it normalizes spending by the output generated, making it comparable across companies of different sizes.

Benchmarks & pitfalls

David Sacks of Craft Ventures (2020) defined the canonical thresholds: below 1× is amazing, 1–1.5× great, 1.5–2× good, 2–3× suboptimal, and above 3× bad. These are directional benchmarks from a single practitioner framework, not a multi-company empirical study, but they are widely used in venture. The metric breaks down entirely for pre-revenue companies — there is no ARR denominator, so the ratio is undefined. It is also less meaningful for businesses with meaningful non-ARR revenue streams or significant deferred revenue.