Burn Multiple
A metric that measures how much cash a startup burns to generate each net new dollar of Annual Recurring Revenue.
FORMULA
Burn Multiple = Net Cash Burn in Period / Net New ARR in PeriodWhy it matters
The Burn Multiple, popularized by David Sacks, evaluates growth efficiency across the entire business, not just the sales and marketing engine. While CAC Payback isolates go-to-market efficiency, the Burn Multiple includes engineering, G&A, and overhead costs. A Burn Multiple of 1.5x means the company spends $1.50 to add $1.00 of Net New ARR. A lower multiple is better. It is the ultimate measure of capital efficiency for venture-backed startups. In tight funding environments, the Burn Multiple dictates survival. A multiple under 1.0x is considered elite, while anything over 2.0x requires immediate correction.
2025 BENCHMARK
Benchmarkit Q4 2025 reports a median Burn Multiple of 1.4x for venture-backed SaaS companies.
COMMON MISTAKES
- Using Gross New ARR instead of Net New ARR, effectively ignoring the impact of churn.
- Calculating burn based on accrual accounting rather than actual cash out the door.
- Measuring over too short a period (e.g., one month) where cash timing creates noise.
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