Burn Multiple
Net cash burned divided by net new ARR. Measures capital efficiency -- how many dollars are burned to generate each dollar of new revenue. Lower is better; under 2x is considered efficient.
Burn Multiple Overview
Burn Multiple measures how much a company spends to generate each incremental dollar of ARR. It is calculated as net burn divided by net new ARR added in the same period. A lower number indicates more efficient growth.
How to Calculate Burn Multiple
Formula:
Burn Multiple = Net Burn / Net New ARR
Example:
If a company burns $5M in cash and adds $2.5M in net new ARR during a quarter:
- Net Burn = $5M
- Net New ARR = $2.5M
- Burn Multiple = 5 / 2.5 = 2.0x
This means the company spent two dollars for every dollar of new recurring revenue.
What Good Looks Like
- Below 1x: Exceptional efficiency. The company is generating more ARR than it burns.
- 1x to 1.5x: Good. Efficient growth that most investors consider healthy.
- 1.5x to 2x: Acceptable. Typical for earlier-stage companies still scaling.
- Above 2x: Concerning. The company is spending heavily relative to growth and needs to improve unit economics.
Why Burn Multiple Matters
Burn Multiple is a standard board-level metric because it combines growth and efficiency into a single number:
- Growth rate alone ignores cost.
- Burn rate alone ignores output.
Burn Multiple shows whether growth is being purchased at a reasonable price.
RevOps Application
Revenue Operations (RevOps) can improve Burn Multiple by increasing revenue efficiency through:
- Better pipeline efficiency
- Higher conversion rates