Burn Multiple

Category: Metrics & KPIs · Level: Advanced · Also called: Net burn multiple

TL;DR

Net new ARR divided by net burn, the dollars of capital consumed per dollar of new ARR generated.

The burn multiple, popularized by David Sacks, divides net burn by net new ARR for the same period. A burn multiple of 1.0 means the company is generating $1 of new ARR for every $1 of cash burned; below 1 is excellent, 1 to 2 is healthy, 2 to 3 is acceptable in a hot market, above 3 is concerning.

The metric is increasingly the headline efficiency measure for growth-stage SaaS, especially in slower funding environments. It penalizes 'growth at any cost' and rewards capital-efficient scaling.

Formula

Burn Multiple = Net Burn ÷ Net New ARR

  • Net Burn, Monthly net cash burn during the period
  • Net New ARR, New + expansion − churn − contraction in the same period

Less than 1 is exceptional; 1 to 2 is healthy; above 3 is concerning in 2024+ markets.

Worked example

Net burn $400k/mo = $4.8M/yr; net new ARR added in the year = $3.2M. Burn multiple = $4.8M ÷ $3.2M = 1.5×, 'great' on the Sacks scale (1 to 1.5×). Above 3× means rethink spend.

Common pitfalls

  • Reporting burn multiple over too short a window.
  • Using gross instead of net new ARR in the numerator.
  • Ignoring the difference between burn multiple at small and large ARR.

When this shows up in a pitch deck

Burn multiple is a headline efficiency metric on the Traction or Financials slide for growth-stage SaaS.

See Burn Multiple in context

Burn Multiple shows up most often in these scoring rubrics and investor profiles, jump straight to who cares about it and how to pitch them.

In VC frameworks

For investor types

Related terms

  • ARR, Annual Recurring Revenue, the value of subscription contracts on a normalized 12-month basis, the headline SaaS revenue metric.
  • Net Burn, Monthly cash outflow minus cash inflow, the actual rate at which the cash balance is depleted.
  • Runway, The number of months the current cash balance will last at the current net burn rate before the company runs out of money.
  • Rule of 40, A SaaS health benchmark: revenue growth rate plus profit margin should sum to at least 40%.
  • Magic Number, A SaaS sales-efficiency ratio: net new ARR divided by sales and marketing spend in the prior period.

Use this in your next pitch deck

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Pitch deck pillar pages

Long-form deep dives on the slides Burn Multiple most often shows up on.

  • Pitch Deck Traction Slide, Build a traction slide that proves the business is working: stage-appropriate metrics, the chart shape investors expect, and three failure patterns to avoid.
  • Fundraising Readiness Checklist, Are you ready to raise? A 12-question fundraising readiness checklist: deck quality, traction milestones, valuation defensibility, investor list, data room.