What the Burn Multiple Formula Measures
Burn Multiple tells you how efficiently a company converts cash into growth. Popularized by investor David Sacks, the formula is:``` Burn Multiple = Net Burn ÷ Net New ARR ```
Net Burn is total cash outflows minus cash inflows from operations in a given period. Net New ARR is the ARR added in that same period (new logo ARR plus expansion, minus churn and contraction). A Burn Multiple of 1.5 means the company spent $1.50 to generate $1.00 of new ARR.
Interpreting Results by Stage
Burn Multiple thresholds vary by investor and market cycle. The directional principle: the later the stage, the lower the multiple should be. Early-stage companies with high experimentation spend will naturally run higher than growth-stage companies. A company in a fast-moving category with strong gross retention may justify a higher multiple if the growth rate is proportionally high. Use your multiple as a trend line rather than testing it against any fixed cutoff.
| Stage | General Direction | Notes |
|---|---|---|
| Seed / Series A | Higher tolerated | High experimentation spend is expected |
| Series B | Improving expected | GTM efficiency should be demonstrably better than Series A |
| Series C+ | Lower expected | Investors expect clear operating leverage |
| Growth / Pre-IPO | Lowest expected | Required for a credible efficiency narrative |
Burn Multiple vs. Magic Number
The two metrics are complementary. The magic number isolates sales and marketing efficiency by dividing incremental ARR by prior-period S&M spend. Burn Multiple captures the whole business, including R&D, G&A, and any operational overhang. Use the magic number to evaluate your GTM motion specifically. Use burn multiple to evaluate the entire growth equation when reporting to a board or investor.
How RevOps Teams Use This Formula
Track burn multiple on a rolling basis, quarter by quarter, rather than pulling it only at fundraise time. Plot it quarterly alongside net new ARR growth. If growth accelerates but burn multiple holds flat or improves, you have a scalable model. If growth decelerates while burn multiple rises, you have a compounding efficiency problem.
Segment the analysis by cohort when possible. A company adding mostly expansion ARR will show a very different burn profile than one relying entirely on new logo acquisition. Expansion revenue costs less to generate and should improve your multiple over time.
For teams building capacity models, burn multiple pairs directly with the rule of 40, which uses growth rate plus profit margin as a composite health check.
Frequently Asked Questions
How do you calculate burn multiple?
Divide your net burn (cash out minus cash in from operations) by net new ARR added in the same period. A result of 1.0 means you spent one dollar to generate one dollar of new ARR. Lower is better.
What is a good burn multiple for a SaaS startup?
There is no universal cutoff, but the general practitioner view is that lower is better, and a multiple below 1x suggests highly efficient growth while a multiple above 2x to 3x typically prompts investor scrutiny. Early-stage companies with high experimentation spend will naturally run higher than growth-stage companies.
How does burn multiple differ from the magic number?
Both measure go-to-market efficiency, but the magic number uses gross profit from new ARR in the numerator, while burn multiple uses total net burn. Burn multiple captures all operational spending, including R&D and G&A, where the magic number is limited to sales and marketing.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like burn multiple formula into prescriptive action for your team.
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