Burn multiple calculator
Growth funded by heavy cash burn and growth funded efficiently look identical on a revenue chart. Burn multiple is the number that tells them apart — how many dollars it actually costs to add one dollar of recurring revenue.
Burn multiple
1.50×
Rating
Great
For every $1 of net new ARR added, this business burns $1.50 in cash. Investors commonly treat below 1× as outstanding, 1-1.5× as great, 1.5-2× as good, 2-3× as worth watching, and above 3× as a real efficiency concern.
See how your burn multiple compares — anonymous, no account needed.
Burn multiple formula
Where the metric comes from
David Sacks, co-founder of Craft Ventures, is widely credited with popularizing burn multiple as a standard SaaS efficiency metric. Before it caught on, most growth-stage conversations centered on revenue growth rate largely in isolation — a company growing 150% year-over-year was celebrated regardless of how much cash that growth actually consumed. Burn multiple reframed the question: not just how fast is this company growing, but how much is that growth actually costing.
The metric gained significantly more attention after the 2021 funding peak, when capital became more expensive and harder to raise across the venture landscape. Investor focus shifted from a near-exclusive emphasis on growth rate toward capital efficiency running alongside it — and burn multiple fit that shift well, since it directly penalizes growth bought at an unsustainable cash cost in a way growth rate alone never could.
A worked example
A company burns $180,000 in net cash over a quarter while adding $120,000 in net new ARR over that same period.
Burn multiple: $180,000 ÷ $120,000 = 1.5×. For every $1 of new recurring revenue added, the company is spending $1.50 in cash — landing right at the boundary between "great" and "good" on the five-tier benchmark scale.
Benchmarks, all five tiers
Spending less than a dollar to add a dollar of ARR. Rare, and usually seen in highly efficient, often product-led or bootstrapped-adjacent growth motions.
Strong capital efficiency, commonly seen in top-quartile SaaS companies with disciplined go-to-market spend.
A healthy, sustainable efficiency level for most growth-stage companies — this is where the worked example above lands.
Not alarming on its own, but a trend worth tracking over time rather than accepting as a permanent baseline.
Usually prompts a closer look at sales and marketing efficiency, unless deliberately front-loading spend for a specific, time-bound reason.
A concerning-tier example: a company burning $420,000 against just $110,000 in net new ARR posts a burn multiple of 3.82× — comfortably into the range that prompts serious investor scrutiny of the sales and marketing engine, or a hard look at whether spend needs to be cut before the next fundraise.
Net burn vs. gross burn
Net burn — cash out minus cash in — is the standard input for this formula, since it reflects what the company is actually consuming after revenue collected is netted out. Gross burn (total cash expenses with no revenue offset at all) overstates true burn for any company with meaningful revenue already, and using it in place of net burn will produce an artificially high, misleading burn multiple. Gross burn is more relevant for a pre-revenue company where net and gross burn are effectively the same number anyway.
An improvement scenario
A company posts a 2.5× burn multiple: $300,000 in net burn against $120,000 in net new ARR — solidly in the "okay, worth watching" tier. There are two distinct levers to improve it, and they aren't interchangeable in practice. Cutting net burn to $180,000 while holding net new ARR steady brings the multiple to 1.5× (the "great" tier) — typically achieved through reduced headcount growth or lower non-essential spend. Alternatively, growing net new ARR to $200,000 while holding burn steady at $300,000 brings the multiple to exactly the same 1.5× — achieved instead through better sales execution, higher conversion rates, or improved retention feeding more net-new ARR per dollar already spent.
Both paths land at the identical ratio, but they represent very different operating realities — one is a defensive cost-cutting move, the other is offensive growth-efficiency work. A board reviewing a burn multiple improvement should always ask which lever actually moved, since the two paths carry very different implications for the durability of the improvement going forward.
Burn multiple vs. Rule of 40
Rule of 40 (growth rate + profit margin) checks whether growth and profitability are in a healthy balance overall. Burn multiple isolates capital efficiency specifically — how much cash growth is actually costing, independent of the broader margin picture. A company can look fine on one and concerning on the other, since the two formulas use different inputs entirely: Rule of 40 doesn't care about cash at all, and burn multiple doesn't care about the profit margin baseline the growth is being layered on top of. Most thorough investor reviews check both. See the Rule of 40 calculator for the companion metric.
Burn multiple by company stage
The five-tier scale above is a general benchmark, but the realistic target shifts meaningfully by company stage — early-stage inefficiency is expected in a way that later-stage inefficiency isn't.
Burn multiples above 3x are common and often tolerated, since the company is still finding product-market fit and net new ARR is small and volatile enough that the ratio itself is noisy.
Investors typically start expecting a burn multiple in the 1.5-2.5x range, as go-to-market spend starts to show a repeatable, more efficient pattern.
A burn multiple above 2x starts drawing real scrutiny at this stage — the company is expected to have found and be scaling a repeatable, efficient growth motion by now.
Under 1.5x is often the expectation, sometimes under 1x, since capital efficiency at scale is a core part of the investment thesis for a company this mature.
Limitations
A single large upfront annual contract closing right at period-end can make net new ARR spike in a way that flatters burn multiple for that one period without reflecting a real efficiency change.
A one-time infrastructure migration or a single large legal expense inflates burn multiple for that period, even though it has nothing to do with the ongoing cost of acquiring growth.
Net new ARR from a discount-driven, high-churn-risk cohort of customers counts identically to net new ARR from a durable, well-fit customer base — the formula can't tell the two apart on its own.
Frequently asked questions
Burn multiple measures how many dollars a company burns to generate one dollar of net new annual recurring revenue. It's a capital-efficiency metric — a direct answer to "how much does growth actually cost this business," and one increasingly used by investors alongside or instead of growth rate alone.
Below 1x is considered outstanding. 1-1.5x is great, 1.5-2x is good, 2-3x is okay but worth watching, and above 3x is generally considered a real efficiency concern — though earlier-stage companies are typically given more room than later-stage ones, since some inefficiency is expected while a company is still finding product-market fit.
Rule of 40 adds growth rate and profit margin — a check on whether the balance between the two is healthy. Burn multiple divides burn by net new ARR — a direct measure of capital efficiency specifically. A company can pass the Rule of 40 with a mediocre burn multiple, or vice versa; they're related but not interchangeable, and most serious investor reviews use both.
Net burn — cash out minus cash in — is the standard, since it reflects the actual cash the company is consuming after accounting for revenue collected. Gross burn (total expenses with no revenue offset) overstates true burn for anything but an early pre-revenue company and will produce a misleadingly high burn multiple for a business with meaningful revenue already.
The increase in annualized recurring revenue over the same period as the burn figure — new ARR added, plus expansion, minus contraction and churn, matching the net-new-MRR figure ×12 if measuring monthly. Using a different period for the ARR figure than the burn figure produces a meaningless ratio.
If net new ARR is zero or negative (revenue shrinking rather than growing), burn multiple is undefined — dividing burn by a non-positive number doesn't produce a meaningful capital-efficiency figure. A shrinking-revenue business has a more fundamental problem than capital efficiency to solve first.
David Sacks, the co-founder of Craft Ventures, is widely credited with popularizing burn multiple as a standard SaaS efficiency metric, articulating it clearly in commentary aimed at helping founders and investors think about capital efficiency in a single, comparable number rather than growth rate or burn rate viewed in isolation.
The startup funding environment shifted meaningfully after the 2021 peak — capital became more expensive and harder to raise, and investor attention moved from a near-exclusive focus on growth rate toward capital efficiency alongside it. Burn multiple fit that shift well: a single number that punishes growth bought too expensively, in a way growth rate alone never could.
The formula technically works for any business with a recurring-revenue concept, but it was designed for and is most meaningful in a SaaS or subscription context, where ARR is a well-defined, standard figure. Applying it to a business without a clean recurring-revenue metric requires adapting the denominator, and the resulting number is less directly comparable to published SaaS benchmarks.
Monthly or quarterly, tracked as a trend rather than judged from a single period — a single unusually large one-time expense or a single quarter of unusually strong bookings can distort burn multiple for that period alone without reflecting a real change in underlying capital efficiency.
A strong burn multiple gives a company more leverage in a fundraise, since it demonstrates the existing capital is being converted into growth efficiently rather than simply being spent. Investors reviewing a term sheet increasingly ask for burn multiple trend over the last several quarters as standard diligence, alongside growth rate and gross margin.
Yes — burn multiple says nothing about total runway remaining. A company could post an excellent 1.2x burn multiple while having only two months of cash left, if its absolute burn rate is simply too high relative to its cash balance. Burn multiple measures efficiency of spend, not sufficiency of capital — always check it alongside the runway calculator, not as a replacement for it.
Calculate your own burn multiple above, free, or check it against cash runway on the runway calculator.
Glossary:Burn Multiple
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