Burn Multiple
Growth MetricsBurn Multiple measures how much cash a startup burns to generate each dollar of net new annualized recurring revenue. It is a whole-company efficiency metric: every cost line, not just sales and marketing, sits in the numerator.
The metric was popularized by David Sacks in 2020 and rapidly became the default capital-efficiency measure for venture-backed SaaS during the 2022 onward correction. Its discipline lies in being unforgiving: high engineering spend, large G&A, or expensive office overhead all show up the same way as paid-acquisition spend in the burn number.
Contents
Key takeaways
- Burn Multiple = Net Cash Burn ÷ Net New ARR. Below 1.0 is excellent; 1 to 2 is good; 2 to 3 is concerning; above 3 indicates inefficient growth.
- Burn Multiple captures total capital efficiency, including engineering, G&A, and overhead. It is stricter than Magic Number, which only counts sales and marketing spend.
- Coined by Craft Ventures' David Sacks in 2020, the metric became a standard board KPI during the 2022 to 2024 efficiency reset in SaaS.
What is the Burn Multiple?
The Burn Multiple is the ratio of a SaaS company's net cash burn (revenue minus all cash expenses) to its net new ARR (gross new ARR plus expansion minus churn and contraction) in the same period. It answers: how many dollars did this company burn to produce one dollar of incremental recurring revenue?
Lower is better. A Burn Multiple of 0.5 means the company burned 50 cents to add 1 EUR of ARR, exceptional efficiency. A Burn Multiple of 3 means it burned 3 EUR for every 1 EUR of ARR, inefficient growth that requires substantial outside capital.
How do you calculate the Burn Multiple?
The formula:
Burn Multiple = Net Cash Burn ÷ Net New ARR
Worked example: A SaaS company burns 5,000,000 EUR in net cash over a year and adds 4,000,000 EUR in net new ARR. Burn Multiple = 5,000,000 ÷ 4,000,000 = 1.25. The company spent 1.25 EUR of cash per dollar of incremental ARR added.
Benchmark scale (David Sacks):
- Below 1.0: excellent. The company is producing more annualized ARR than it is burning.
- 1.0 to 1.5: good. Standard for healthy SaaS in growth mode.
- 1.5 to 2.0: suspect. Likely overspending in some line.
- 2.0 to 3.0: bad. Capital efficiency needs immediate attention.
- Above 3.0: very bad. The company is unlikely to fund itself without continual outside rounds.
Burn Multiple vs Magic Number
Both measure SaaS efficiency, but at different scopes:
- Magic Number measures sales and marketing efficiency: how much new ARR comes from each sales and marketing dollar.
- Burn Multiple measures whole-company efficiency: how much new ARR comes from each total dollar burned, including engineering, G&A, and overhead.
A company with a strong Magic Number can have a poor Burn Multiple if engineering or G&A spend is bloated. The diagnostic is useful: if Magic Number is healthy but Burn Multiple is weak, the inefficiency is outside sales and marketing. The fix is somewhere else.
Use both. Magic Number for sales-team efficiency conversations; Burn Multiple for board and capital-allocation conversations.
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Frequently asked questions
Should profitable SaaS companies still report Burn Multiple?
If the company is cash-flow positive, Burn Multiple is negative or zero (no burn to divide), and the metric is not informative. Cash-flow-positive SaaS reports growth and margin metrics like the Rule of 40 instead.
Does the Burn Multiple count expansion ARR?
Yes. Net new ARR in the denominator includes expansion ARR from existing customers, alongside new-logo ARR. Subtracting churn and contraction is also standard. The whole point is to capture the net change in recurring revenue per dollar of cash burned.
What's a realistic Burn Multiple for a Series A SaaS?
1.5 to 2.0 is typical at Series A. The company is investing heavily in product, sales build-out, and brand, which weighs on the numerator. The Burn Multiple should trend below 1.5 by Series C and below 1.0 in pre-IPO stages for an efficient path to public markets.