Burn Multiple
The ratio of net burn to net new ARR — measuring how efficiently a startup converts spending into revenue growth.
What is Burn Multiple?
Burn multiple measures capital efficiency by comparing how much cash you burn to how much new revenue you generate. It's calculated by dividing net burn by net new ARR (annual recurring revenue added in a period).
A burn multiple of 1x means you're spending $1 for every $1 of new ARR — highly efficient. A burn multiple of 3x means you're spending $3 for every $1 of new ARR. The lower the multiple, the more efficiently you're growing.
David Sacks popularized burn multiple as a more holistic metric than growth rate alone, because it accounts for the cost of that growth. A company growing 20% monthly with a 5x burn multiple may be less healthy than one growing 10% with a 1.5x burn multiple.
Why it matters
Burn multiple is increasingly the metric VCs use to evaluate startups. High growth means nothing if you're spending unsustainably to achieve it. A low burn multiple signals that your business model is working — customers want what you're selling, and you can acquire them efficiently.
It's also a powerful internal metric. If your burn multiple is trending up, it means your growth is becoming less efficient — a signal to investigate whether spending is going to the right places.
Formula
Burn Multiple = Net Burn / Net New ARR
Example
You burned $150,000 net last quarter and added $60,000 in net new ARR (new customers minus churn). Burn multiple = $150,000 / $60,000 = 2.5x. Benchmark: under 1.5x is excellent, 1.5-2.5x is good, over 3x is a concern.
Common mistakes
- 1Calculating burn multiple with gross burn instead of net burn
- 2Not accounting for churn when computing net new ARR
- 3Comparing burn multiples across companies at different stages (seed vs. Series B)
Understand your burn efficiency
RunwayCal tracks your burn components and revenue, giving you the data you need to calculate and improve your burn multiple.
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