What is the burn multiple?
The burn multiple is how much cash you burn to add one dollar of net new ARR. A 1.5x burn multiple means you spent 1.50 dollars of cash for every dollar of new recurring revenue. Lower is better.
Popularized by David Sacks, it is the cleanest single read on capital efficiency, because it captures the cost of growth across sales, marketing, product, and overhead in one number.
The burn multiple formula.
Burn multiple = net burn divided by net new ARR, over the same period. Net new ARR is ARR at the end minus ARR at the start. Use the net new ARR figure that matches your window.
Measure it over a quarter or a year. A 1.5 million dollar net burn that added 1 million dollars of net new ARR is a 1.5x burn multiple.
A worked example.
Over a year you burn 1.5 million dollars net and grow ARR from 4 million to 5 million, so net new ARR is 1 million. Burn multiple is 1,500,000 divided by 1,000,000, which is 1.5x.
What is a good burn multiple?
The bands are well established. Under 1x is exceptional. 1 to 1.5 is great. 1.5 to 2 is good. 2 to 3 is suspect, and worth examining. Above 3 means you are burning a lot of cash for each dollar of ARR, which is hard to defend unless you are very early.
A rising burn multiple is a warning even when growth looks fine, because it means growth is getting more expensive.
How to improve your burn multiple.
Add ARR more cheaply, or burn less to add it. The lever most teams miss is channel mix, since paid acquisition raises the cost of every new dollar of ARR.
Organic search adds ARR without a per-customer cost, so it pulls the burn multiple down as it compounds. See how we grow ARR efficiently for B2B SaaS.