Growth & SaaS
Burn multiple
The burn multiple measures how much cash a company burns to add each dollar of new annual recurring revenue.
Burn multiple = Net burn for the period ÷ Net new ARR for the period
Worked example
| Net burn for the quarter | $1,500,000 |
| ARR at the start of the quarter | $4,000,000 |
| ARR at the end of the quarter | $5,000,000 |
$1,500,000 ÷ ($5,000,000 − $4,000,000) = 1.5×
Why it matters
The burn multiple ties spending to results. Lower is better: under 1× is often called excellent and above 2× a warning sign, because the company is spending far more than it adds in recurring revenue.
Common mistakes
Where it misleads
Using gross new ARR, before churn and downgrades, which makes the multiple look better than it is.
Measuring over a single month, where timing of a few large deals swings the result.
Treating a profitable company’s multiple as meaningful: with no net burn, the ratio stops telling you much.
Related terms
Keep reading
- Cash burn and runwayNet burn is how much more cash a business spends than it takes in each month; runway is how many months its cash would last at that rate.
- Annual recurring revenue (ARR)Annual recurring revenue is the yearly value of a company’s recurring subscription revenue at a point in time, usually MRR multiplied by twelve.
- Rule of 40The Rule of 40 says a healthy software company’s revenue growth rate plus its profit margin should add up to at least 40%.
Stop calculating it by hand.
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