How to calculate burn multiple

Burn multiple tells you how much cash you burn to add each new dollar of recurring revenue. Runway says how long the money lasts. Burn multiple says whether you're spending it well. The example company below is made up so the math is easy to follow.

The formula

Burn multiple = net burn ÷ net new ARR, both over the same period (a quarter is common).

Net new ARR is ending ARR minus starting ARR, so it already includes new customers, upgrades, downgrades and churn.

The example

Over one quarter, a startup burns $150,000 net. ARR goes from $400,000 to $500,000, so net new ARR is $100,000.

Burn multiple = $150,000 ÷ $100,000 = 1.5. It spent $1.50 to add each $1 of ARR.

If the next quarter burns the same $150,000 but only adds $50,000 of ARR, the burn multiple jumps to 3. Same spend, half the result.

What's a good burn multiple?

A widely shared scale from investor David Sacks reads roughly like this:

• Under 1: amazing
• 1 to 1.5: great
• 1.5 to 2: good
• 2 to 3: suspect
• Over 3: bad

Lower is better. Very early companies often run higher because there's little revenue to grow from, so compare yourself over time, not just against the scale.

Special cases

• Net burn is zero or negative: you're not burning cash, so the burn multiple isn't meaningful. You're growing on your own revenue.
• Net new ARR is zero or negative: the burn multiple has no useful value. You're spending and shrinking at the same time, which is the real problem to fix.

Common mistakes

• Using one month. A single big deal or annual renewal swings it. Use a quarter, or average a few months.
• Counting new bookings instead of net new ARR. Churn and downgrades have to come out.
• Mixing periods, like a quarter of burn against a month of ARR growth.
• Counting one-off fundraising or legal costs as normal burn without noting it.

Related numbers

Net burn comes from burn rate and runway. ARR comes from how to calculate MRR and ARR. Every formula in one place: SaaS metrics formulas.

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook with a 12-month MRR projection, net burn, runway with a zero-cash date, and side-by-side scenarios.