Burn Multiple: Formula, Meaning and How to Use It
The burn multiple shows how much cash a startup burns to add each unit of new annual recurring revenue (ARR). The investor David Sacks set out the measure in 2020. Lower is better: it means growth is costing less cash.
The formula
Burn multiple = net burn ÷ net new ARR
- Net burn: cash out minus cash in over the period
- Net new ARR: new ARR plus expansion, minus ARR lost to churn and downgrades, over the same period
Measure both over the same period, such as a quarter.
Worked example
Illustrative example: in a quarter, a startup's net burn is USD 300,000 and its net new ARR is USD 200,000.
Burn multiple = 300,000 ÷ 200,000 = 1.5
The startup burned 1.5 dollars of cash for every dollar of new ARR. Below 1 means it added more ARR than it burned.
How to read it
Compare your burn multiple over time and against your stage. A rising multiple means growth is getting more expensive. Sacks's original article includes a benchmark scale and notes that a high multiple can be acceptable in the earliest years, when sales are just starting and the product is still being built.
When it does not fit
The burn multiple is designed for recurring-revenue businesses. If you are pre-revenue, net new ARR is close to zero and the ratio means little. If revenue is not recurring, track net burn against gross profit added instead, and look at unit economics by channel.
How to improve your burn multiple
- Cut spend that has not produced measurable return
- Improve retention, because churn reduces net new ARR
- Fix pricing and expansion revenue
- Move budget to the channels with the best CAC payback
Use the unit economics calculator to find the weak channel.
Frequently asked questions
Lower is better. Below 1 means you add more ARR than you burn. Compare against your stage and your own trend, and see the original article for its benchmark scale.
Burn multiple vs runway: what is the difference?Runway tells you how long your cash lasts. The burn multiple tells you how efficiently that cash turns into growth.
Can I use it without recurring revenue?Not directly. Use net burn against gross profit added, and unit economics by channel.
Where does the burn multiple come from?David Sacks, "The Burn Multiple" (2020): https://sacks.substack.com/p/the-burn-multiple-51a7e43cb200
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Written by Akram El-Karrar, CPA, from the work we do for startups every week.