Burn Multiple Calculator
In a tight funding market, how fast you grow matters less than how much cash you torch to do it. The burn multiple captures that in one figure. Enter the cash you burned and the new recurring revenue it bought, and see where you land on the efficiency scale investors now watch closely.
Burn multiple = net cash burn ÷ net new ARR. It measures capital efficiency: how many dollars of cash you burn to generate one dollar of new annual recurring revenue. Lower is better. Investor David Sacks proposed the bands — under 1x is amazing, 1x to 1.5x great, 1.5x to 2x suspect, and above 2x a warning sign. Because it captures growth and burn in a single number, the burn multiple has become the default efficiency test in a capital-disciplined market.
Burn Multiple Calculator inputs and result
| Burn multiple | Rating |
|---|
How to use this calculator
- Measure net burn for the periodNet burn is cash out minus cash in — how much your bank balance actually fell. Use real cash flow, not accounting losses, and pick a clean period such as a quarter or a year.
- Measure net new ARR for the same periodNet new ARR is new plus expansion ARR, minus churned and contraction ARR. It must cover exactly the same window as the burn, or the ratio is meaningless.
- Divide burn by net new ARRThe result is dollars of cash burned per dollar of new recurring revenue. Unlike growth alone, it rewards adding ARR cheaply and punishes spending that does not produce revenue.
- Read against the Sacks bandsUnder 1x is amazing, 1x to 1.5x great, 1.5x to 2x suspect, above 2x a warning. The bands are rules of thumb; weigh them against stage and market conditions.
- Export the resultCopy a share link, download the CSV for your model, or print a one-pager for the board or fundraising deck.
RGM Expert Says
The burn multiple is the metric the funding market quietly started grading on, and we put it front and center the moment a client starts thinking about a raise. It is brutally honest in a way growth rate is not: a company can triple ARR and still look reckless if it torched cash to do it. The ratio strips away the growth story and asks the only question a disciplined investor cares about — what did that growth cost in cash.
Where it earns its keep is forcing the right diagnosis when the number is bad. A high burn multiple is almost never solved by spending more; it is solved by finding the burn that is not producing ARR. We trace it to one of three culprits nearly every time: hiring far ahead of revenue, weak sales efficiency, or churn that forces the company to re-buy ARR it already paid to win. Each has a different fix, and the multiple alone will not tell you which — but it tells you to go look.
We also caution against worshipping a tiny burn multiple. An under-1x figure is genuinely excellent, but at very early stage it can mean a company is being too cautious and under-investing in a land-grab market. The right reading is always contextual: pair the burn multiple with growth rate and net revenue retention before deciding whether the discipline is wisdom or timidity.
How it works
The burn multiple is a cost-of-growth ratio: the cash you consumed divided by the recurring revenue that cash produced.
- Net cash burn — cash out minus cash in for the period; the real drop in your bank balance.
- Net new ARR — new + expansion ARR, minus churned + contraction ARR, for the same period.
- Burn multiple — dollars of cash burned per dollar of new ARR; lower is better.
Worked example: a company burns $3,000,000 of net cash to add $2,500,000 of net new ARR. Burn multiple = 3,000,000 ÷ 2,500,000 = 1.20x — in David Sacks’ ‘great’ band. See the burn multiple deep dive.
Why the burn multiple replaced growth-at-all-costs
For a decade, SaaS lionized growth and forgave the burn behind it. The burn multiple, proposed by David Sacks of Craft Ventures, reframed the conversation by holding growth accountable to its cash cost. Its genius is that it captures the whole business in one ratio: efficient companies that add ARR cheaply score low, while companies papering over weak economics with cash score high no matter how fast they grow. When capital got expensive, this became the number investors led with.
It is also a cleaner efficiency test than its predecessors. Earlier metrics like the magic number focused on sales-and-marketing spend alone; the burn multiple counts all cash burned — engineering, G&A, everything — against new ARR. That makes it harder to game, because a company cannot flatter the ratio by simply reclassifying spend out of the sales line. It measures the efficiency of the entire machine, not one department.
The discipline it enforces is durable: a low burn multiple means a company can grow further on the same cash, raise less often, and survive a downturn that strands less-efficient peers. Read it alongside the Rule of 40 and net revenue retention — together they tell you whether growth is fast, balanced, and cheap, which is the trifecta that earns premium valuations even in cautious markets.
Burn multiple efficiency bands
These bands come from David Sacks’ original framing and are rules of thumb, not laws. Earlier-stage companies often run higher multiples; weigh the number against stage and market.
| Burn multiple | Rating | Read |
|---|---|---|
| Under 1x | Amazing | Added more ARR than cash burned |
| 1x to 1.5x | Great | Efficient growth — fundraising-strong |
| 1.5x to 2x | Suspect | Workable but watch the leak |
| Above 2x | Bad | Inefficient — tighten before raising |
What investors say about the burn multiple
The burn multiple measures overall burn relative to net new ARR — the higher it is, the more the company is burning to achieve each unit of growth. Under 1x is amazing; over 2x is suspect.
Capital efficiency is the new growth — the companies that win the next decade will be the ones that turned the least cash into the most recurring revenue.