Burn Multiple
The burn multiple is how much cash a company burns to add one dollar of net new ARR. Popularised by David Sacks, it is the bluntest efficiency test in venture-stage SaaS: lower is better.
Formula
Worked example
Burning $2M in a year while ARR grows from $3M to $5M is a burn multiple of $2M ÷ $2M = 1.0 — every dollar burned bought a dollar of recurring revenue.
Rules of thumb for venture-stage companies: under 1 is amazing, 1–1.5 great, 1.5–2 good, 2–3 suspect, above 3 alarming. Early-stage companies naturally run higher; the trajectory matters more than the level.
Because it uses net burn and net new ARR, the burn multiple captures everything — churn, gross margin, S&M efficiency, R&D bloat — in one number. That breadth is its power and its limitation: it flags a problem without saying where it is.
Compute it: Burn rate & runway calculator