Burn Multiple Calculator

Burn multiple measures how efficiently a startup converts cash into revenue growth. The formula is simple: Burn Multiple = Net Burn / Net New ARR. If a company burns $500,000 in a quarter and adds $250,000 in net new ARR, the burn multiple is 2.0x. Lower is better — it means the company is generating more revenue for every dollar it spends. The metric was popularized by David Sacks and has become one of the most widely used efficiency metrics in SaaS investing.

A burn multiple below 1x is considered excellent — the company is generating more than $1 of ARR for every $1 burned. Between 1-2x is good and attractive to investors. Above 2x starts to raise concerns, and above 3x suggests the company is burning cash inefficiently relative to its growth. In the zero-interest-rate era of 2020-2021, burn multiples of 5-10x were tolerated. Today, investors expect 1-2x for growth-stage companies and are skeptical of anything above 3x.

Burn multiple and Rule of 40 both measure growth efficiency, but from different angles. Burn multiple looks at cash efficiency (net burn / net new ARR), while Rule of 40 looks at the balance between growth rate and profitability (revenue growth % + profit margin %). Burn multiple is more useful for earlier-stage companies focused on ARR growth, while Rule of 40 is better for later-stage SaaS companies balancing growth with profitability. A company can have a good Rule of 40 score but a poor burn multiple if it is growing slowly but profitably.