Burn Multiple vs Rule of 40
What is the difference between Burn Multiple and Rule of 40? Side-by-side definitions, formulas, and benchmarks for two of the most-watched SaaS metrics.
Definitions
What is Burn Multiple?
Burn Multiple measures capital efficiency by comparing net burn against net new ARR over a period.
Full Burn Multiple definition →
What is Rule of 40?
The Rule of 40 is a SaaS health benchmark stating that a company's revenue growth rate plus its profit margin should add up to 40% or more.
Burn Multiple vs Rule of 40 at a Glance
| Burn Multiple | Rule of 40 | |
|---|---|---|
| Category | Metrics | Metrics |
| Formula | Burn multiple = Net Burn / Net New ARR over a time period | Rule of 40 Score = Revenue Growth Rate + Profit Margin |
| Benchmarks | — | target: 40%; great: 60% |
| Calculator | Burn Multiple calculator | Rule of 40 calculator |
When Each Matters
Burn Multiple and Rule of 40 answer different questions. Burn Multiple measures capital efficiency by comparing net burn against net new ARR over a period. The Rule of 40 is a SaaS health benchmark stating that a company's revenue growth rate plus its profit margin should add up to 40% or more. In practice, healthy SaaS operators watch both, because each one catches failure modes the other misses.