Burn Multiple
What is Burn Multiple?
Burn Multiple measures capital efficiency by comparing net burn against net new ARR over a period.
Burn multiple connects cash consumed with the increase in recurring revenue over the same period. It helps explain whether growth is becoming more or less cash intensive. Use it alongside a runway forecast: efficient growth can still exhaust a small cash balance, and cash conservation can coexist with shrinking revenue.
Formula
Burn multiple = Net Burn / Net New ARR over a time period | Variable | Meaning |
|---|---|
Net Burn | Cash burned net of cash inflows over the period. |
Net New ARR over a time period | Net new annual recurring revenue added during the period (new + expansion − churned − contraction ARR). |
How to use it
- Choose a period, often a completed quarter, and measure net operating cash burn under a documented cash policy. Exclude fundraising proceeds from operating performance.
- Subtract starting ARR from ending ARR using a consistent recurring revenue definition. Include expansion and losses so the result is net growth.
- Divide the period’s net burn by its net new ARR. Review several periods if collections or major payments make one quarter unusual.
Worked example
Hypothetical worked scenario
A fictional company starts a quarter with $1.2 million ARR, ends at $1.5 million ARR, and consumes $450,000 in operating cash.
Net new ARR = $1.5 million − $1.2 million = $300,000. Burn multiple = $450,000 ÷ $300,000 = 1.5×.
If churn reduces ending ARR to $1.35 million with the same burn, the multiple becomes 3×. Looking only at gross new sales would miss the deterioration.
Calculate with your numbers
Burn multiple = Net Burn / Net New ARR over a time period | Variable | Meaning |
|---|---|
Net Burn | Cash burned net of cash inflows over the period. |
Net New ARR over a time period | Net new annual recurring revenue added during the period (new + expansion − churned − contraction ARR). |
Worked example
- Net Burn
- $2,000,000
- Net New ARR over a time period
- $1,000,000
- → Burn Multiple
- 2
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Open the Burn Multiple calculator for a focused view of the inputs.
What the result tells you
For positive burn and positive growth, a lower ratio means less cash was consumed per dollar of additional ARR. Investigate whether changes came from acquisition, retention, delivery cost, or overhead. The ratio locates a question; it does not by itself identify the expense to change.
Assumptions and common mistakes
- Use the same period for both inputs. Do not divide one month’s burn by a full year’s ARR increase.
- Zero or negative net new ARR makes the usual efficiency interpretation unusable. Report the burn and revenue decline directly.
- A cash-generating company can have negative net burn. Describe that cash generation explicitly instead of treating a negative ratio as an ordinary ranking.
Compare related measures
Frequently asked questions
Should I multiply quarterly net new ARR by four?
No. ARR is already annualized. Use the change in ARR during the quarter, matched with cash burned during that quarter.
Does a lower burn multiple guarantee longer runway?
No. Runway also depends on the cash balance and absolute spending. A larger company can have a lower ratio and still consume more dollars per month.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- David Sacks / Craft Ventures: The Burn Multiple
Original 2020 explanation of net burn divided by net new ARR.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.