Burn multiple measures how much cash it costs you to generate each dollar of net new ARR, calculated by dividing net cash burn by net new ARR over the same period. It is a capital efficiency metric that tells investors how expensive your growth actually is. Lower burn multiples mean more efficient growth; unlike the magic number, burn multiple uses total net burn rather than just sales and marketing spend, giving a more complete picture of how efficiently the whole company turns cash into growth.
Burn multiple gives investors a single number for how much cash a company consumes per dollar of new recurring revenue, independent of headline growth rate or company size. Two companies growing at the same percentage can have very different burn multiples if one is spending far more cash to get there.
Take net cash burn for the period (cash out minus cash in from operations) and divide it by net new ARR added over the same period. Use net burn rather than gross burn, and make sure the ARR figure is genuinely net of churn and contraction rather than gross bookings.
A company burns $600,000 in net cash over a quarter and adds $400,000 of net new ARR in that same quarter. Burn multiple equals 600,000 divided by 400,000, which is 1.5x: the company spends $1.50 in cash for every $1 of new ARR it adds.
Below 1x is excellent and rare, meaning you generate more new ARR than you burn. 1x to 2x is good. 2x to 3x is acceptable for early-stage companies that are still investing heavily in growth. Above 3x needs attention and usually means spend is outpacing what the revenue growth justifies.
Using gross burn instead of net burn, which overstates how inefficient the company actually is if there is meaningful revenue offsetting cash out.
Failing to annualize consistently across periods, or letting one-time costs, like a large one-off legal bill or a hiring binge, distort a single quarter's number without noting that context.
On the financials slide, show the burn multiple trend over the last several quarters to demonstrate improving efficiency, for example: burn multiple 1.5x, down from 2.8x a year ago. A declining trend line is a strong signal of a maturing, more disciplined growth engine.
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