The two formulas
``` Sales Efficiency = Net New ARR / Sales and Marketing Spend Burn Multiple = Net Cash Burn / Net New ARR ```
Sales efficiency has a narrow denominator, covering only go-to-market. Burn multiple has a whole-company numerator, covering engineering, general and administrative, and every other cash cost, net of collections.
Worked example
A company adds $8M net new ARR, spends $10M on sales and marketing, and burns $20M net cash for the year.
| Metric | Calculation | Result |
|---|---|---|
| Sales efficiency | $8M / $10M | 0.80 |
| Burn multiple | $20M / $8M | 2.5x |
Which one to use for which decision
Use sales efficiency to decide GTM allocation. It answers whether to add reps, shift budget between channels, or change segment focus, because both sides of the ratio are inside the CRO's control.
Use burn multiple to decide runway and fundraising. It answers whether the company converts capital into durable revenue at a rate that supports the plan.
Reading them together isolates the problem. Efficiency strong and burn multiple weak points at non-GTM cost. Efficiency weak and burn multiple weak points at the revenue engine. Efficiency weak and burn multiple acceptable usually means a large existing ARR base is masking a stalled new business motion.
The forecast dependency both metrics share
Both metrics are only as trustworthy as the ARR number in them, and that number is a forecast until the period closes. ORM data shows that of the pipeline carrying in-quarter close dates on day one of the quarter, roughly 20% actually closes in that quarter. Building a burn plan on the other 80% produces a metric that revises hard at quarter end.
Ground both ratios in bookings you can defend rather than pipeline you can see. Pipeline coverage is an input to that judgment, not the answer, as covered in the 3x pipeline coverage rule is wrong. Efficiency metrics computed on optimistic ARR mislead in both directions, and they mislead quietly.
Frequently Asked Questions
Can a company have strong sales efficiency and a bad burn multiple?
Yes, and it is common. Sales efficiency only counts sales and marketing in the denominator, so a company with a productive GTM motion and an oversized engineering or G&A base can post a healthy efficiency ratio while burning cash at a rate the ARR cannot support. The gap between the two metrics locates the spending outside go-to-market.
Which metric moves first when growth slows?
Sales efficiency moves first because it is calculated on bookings, which react to deal size, win rate, and cycle length inside the quarter. Burn multiple moves later because cash collection, cost reductions, and working capital changes lag the bookings that caused them.
Do both metrics use net new ARR?
Both should. Net new ARR after churn and contraction is the correct numerator for sales efficiency and the correct denominator for burn multiple. Using gross new ARR in either one credits the business for revenue it lost in the same period.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like sales efficiency vs burn multiple into prescriptive action for your team.
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