The formula
Burn multiple
Burn multiple = Net burn ÷ Net new ARR
Both over the same period. A quarter is the usual window. A month is too noisy, a year hides too much.
- Net burn: cash out minus cash in from customers. Funding rounds never count as cash in. If you don't have it to hand, the burn rate calculator gives it in a minute.
- Net new ARR: ARR at the end of the period minus ARR at the start. That is new plus expansion, minus contraction, minus churn. Churn counts. That is the point.
A worked example
Example, fictional figures
Net burn over the quarter: $1.2M
ARR at the start: $3.0M. ARR at the end: $3.8M
($1.0M new and expansion, $0.2M lost to churn and downgrades)
Net new ARR: $0.8M
Burn multiple = 1.2 ÷ 0.8 = 1.5x
What a good burn multiple looks like
David Sacks of Craft Ventures put the burn multiple on the map in 2020, with a simple scale most investors still start from:
| Burn multiple | Read |
|---|---|
| Under 1x | Amazing |
| 1x to 1.5x | Great |
| 1.5x to 2x | Good |
| 2x to 3x | Suspect |
| Over 3x | Bad |
Two caveats. Very early on, with little ARR, one big deal moves the number by a full point, so I read it seriously once there are a few quarters of revenue behind it. And the scale is a tool, not a law: 2.5x at the start of a deliberate, time-boxed bet is a different conversation from 2.5x that nobody noticed.
Why I like it more than the other efficiency numbers
It is the only one that counts everything. CAC payback ignores G&A. The magic number ignores engineering. Burn multiple takes the whole bill, every salary, every tool, the office plants, and divides it by what actually stuck. Nothing hides.
Three ways founders fool themselves
- Gross new ARR instead of net. Leave churn out and the denominator looks great. But ARR that leaked out the bottom was still paid for. It counts.
- Funding counted as cash in. Net burn shrinks to fiction. A round is not customers paying you.
- Bookings counted as ARR. A contract that starts billing in six months is not ARR yet. Count it when it bills.
How to bring it down
Two levers: burn less, or add more net ARR for the same burn. The fastest win is usually the leak. In the example above, halving churn from $0.2M to $0.1M takes net new ARR to $0.9M and the multiple from 1.5x to 1.33x, without one extra sale.
That is why George reads the burn next to the MRR bridge every month. The question is never just how much you spent. It is what the spend bought, and how much of it walked out the door. For the leak itself, see net revenue retention.