Burn multiple: how to calculate it and what good looks like

Burn multiple tells you how much cash you burn to add each new dollar of annual recurring revenue (ARR). It is one of the fastest ways for an investor to judge whether your growth is efficient, and it gets asked about more and more in Series A conversations.

The formula

Burn multiple = Net burn ÷ Net new ARR

Measure both over the same period, usually a quarter or the trailing twelve months.

• Net burn is cash out minus cash in from operations. Leave out money raised from investors and debt drawdowns.
• Net new ARR is new ARR plus expansion, minus churned and contracted ARR.

A worked example

Say a SaaS company burns $900k in a quarter and grows ARR from $2.0m to $2.6m.

• Net new ARR = $2.6m − $2.0m = $600k
• Burn multiple = $900k ÷ $600k = 1.5x

It burned $1.50 for every new dollar of ARR.

What good looks like

David Sacks popularised the metric with these widely used bands:

Burn multiple	What it signals
Under 1x	Exceptional
1x to 1.5x	Great
1.5x to 2x	Good
2x to 3x	Needs explaining
Over 3x	A concern

Context matters. A pre-seed or seed company with $200k of ARR can show a high burn multiple simply because the base is tiny. Investors care more about the trend, so show it quarter by quarter.

Common mistakes

1. Using gross new ARR. Churn has to come off, or the number flatters you.
2. Mixing periods. Use a quarter of burn against a quarter of ARR growth, never a month against a quarter.
3. Counting one-off revenue. Services and implementation fees aren’t ARR.
4. Ignoring timing. One big hire or one big deal can swing a single quarter. Show trailing twelve months next to the quarterly figure.

How to use it in your board pack

Report burn multiple every quarter next to runway and net revenue retention. If it’s rising, explain why: for example, an intentional hiring push ahead of a launch, and when you expect it to come back down.