Burn multiple: how to calculate it and what good looks like

The formula

Burn multiple = net burn ÷ net new ARR, measured over the same period, usually a quarter or the trailing 12 months.

Net burn is the cash the business lost in the period, leaving out money raised from investors or lenders. Net new ARR is closing ARR minus opening ARR: new and expansion revenue, less contraction and churn.

Unlike LTV:CAC, which looks at sales and marketing spend per customer, the burn multiple counts all cash spent, including product, engineering and overheads. It asks a blunt question: how much did the whole company burn to grow?

Worked example

An illustrative SaaS startup starts a quarter with ₹6 crore of ARR and ends it with ₹7.5 crore, so net new ARR is ₹1.5 crore. Its bank balance falls from ₹20 crore to ₹17 crore with no new funding, so net burn is ₹3 crore. Burn multiple = 3 ÷ 1.5 = 2.0x. The arithmetic is the same in dollars: burning $2 million to add $1 million of ARR is also 2x.

The trend over several quarters matters more than any single figure. In the table below, Q2 improved because growth rose on the same spend; Q3 worsened because spending rose while growth fell.

Commonly cited benchmarks

The bands most often quoted come from a framework popularised by investor David Sacks in 2020 and widely repeated since. Treat them as a rough rule of thumb, not a standard: what is acceptable depends on stage, market conditions and how much cash the company holds. Earlier-stage companies usually run higher multiples.

When it is useful, and when it is not

The burn multiple works best for companies with recurring revenue that have found product–market fit and are spending to scale. It is less reliable in a few situations:

• Very early companies: on a small ARR base, a single deal can swing the ratio wildly.
• Lumpy enterprise sales: use the trailing 12 months rather than one quarter.
• Annual upfront billing: collecting a year in advance cuts net burn in that quarter and flatters the ratio.
• Businesses without recurring revenue, such as most consumer brands and marketplaces, where contribution margin and payback are better guides.
• Profitable companies: with no net burn, there is nothing to measure.

How to improve it

• Fix churn and contraction first: revenue you keep does not need to be won again, so net new ARR rises without extra spend.
• Push expansion: upgrades and extra seats in existing accounts usually cost less to win than new customers.
• Move sales and marketing spend to the channels with the shortest CAC payback.
• Cut costs that do not drive growth or retention, such as unused tools and roles without a clear plan.
• Review pricing: a price rise for new customers, where the value supports it, adds ARR at little extra cost.