Burn multiple is net cash burn divided by net new annual recurring revenue (ARR) over the same period. If you burn $2 million in a quarter and add $1 million of net new ARR, your burn multiple is 2x. David Sacks, who coined it in 2020, rates under 1x as amazing, 1x to 1.5x great, 1.5x to 2x good, 2x to 3x suspect and over 3x bad.
Key takeaways
- Burn multiple = net burn ÷ net new ARR, for the same period.
- Lower is better. Under 1x is amazing; over 3x is bad, on David Sacks' scale.
- Churn raises it, because lost ARR comes straight out of net new ARR.
- If you're profitable, you don't have a burn multiple, and that's the best score of all.
We'd put more than $200,000 into my results-guaranteed marketing agency. And we were still burning cash. The business was growing. We were winning projects. But every project was a one-off, so the moment it ended, the revenue stopped.
If you'd asked me back then for my burn multiple, I couldn't have given you one.
Not because I didn't know the formula. Because the formula divides by new recurring revenue, and I didn't have any.
That's the most useful thing about burn multiple. It doesn't just ask how much cash you're burning. It asks what you're getting for it. And "projects that disappear next month" isn't much of an answer.
What is burn multiple?
Burn multiple measures how many dollars of cash you burn to add one dollar of net new annual recurring revenue.
David Sacks, co-founder of Craft Ventures, introduced it in an April 2020 post called "The Burn Multiple." He called it a catch-all metric, because almost any serious problem in a startup (weak product, poor pricing, high churn, an inefficient sales team) eventually shows up as more burn, less new ARR, or both.
How do you calculate burn multiple?
Burn multiple = Net burn ÷ Net new ARR
Where:
Net new ARR = New ARR + Expansion ARR − Contraction ARR − Churned ARR
- Net burn is the cash you lost over the period: cash out minus cash in from operations. Don't count money raised from investors or loans.
- Net new ARR is how much your annual recurring revenue grew over the same period, after churn and downgrades.
Worked example: a SaaS startup's year
A software company starts the year at $2.0M ARR. Over 12 months it:
- Wins $1.4M of new ARR
- Gains $0.3M from upgrades
- Loses $0.7M to churn and downgrades
Net new ARR: $1.4M + $0.3M − $0.7M = $1.0M. It ends the year at $3.0M ARR.
It burned $1.5M of cash during the year.
Burn multiple: $1.5M ÷ $1.0M = 1.5x. That's on the border between great and good.
Now imagine it had kept churn to $0.3M. Net new ARR would be $1.4M and the burn multiple would drop to about 1.1x, without spending a dollar more.
That second calculation is why I care so much about churn. Churn doesn't just shrink your revenue. It makes every dollar you spend on growth look worse.
What is a good burn multiple?
David Sacks published this scale for venture-stage startups in his 2020 post. It's still the one everybody quotes:
| Burn multiple | Sacks' rating |
|---|---|
| Under 1x | Amazing |
| 1x to 1.5x | Great |
| 1.5x to 2x | Good |
| 2x to 3x | Suspect |
| Over 3x | Bad |
In the post he gives two examples: burning $2M in a quarter to add $1M of net new ARR is a 2x multiple he calls reasonable for an early-stage startup, while burning $5M for the same $1M is "a terrible Burn Multiple." He also says a high multiple is most acceptable in the earliest years, while the product is still being built, and that it should improve as a company matures.
For context on how many companies are burning at all: SaaS Capital's 2026 survey of more than 1,000 private B2B SaaS companies found 48% of equity-backed companies were running losses deeper than two points below breakeven, against just 17% of bootstrapped ones. High Alpha's 2025 SaaS Benchmarks Report found median monthly cash burn of about $175,000 for companies between $1M and $20M ARR, falling to zero at the median for companies above $50M ARR.
Among 2026's fast-growing companies, payments business Payhawk has reported a 1.2x burn multiple on its way past $100M ARR. (That's a company-reported figure, not an audited one.)
Get your MRR and ARR movements right first
Burn multiple depends on net new ARR. The free MRR Calculator breaks out new, expansion and churned revenue.
How should a small business use burn multiple?
Most gyms, cafes and agencies aren't venture-funded, and many aren't burning cash at all. If you're profitable, you don't have a burn multiple. Congratulations, that's the best score there is.
But the idea is still useful whenever you spend money to grow recurring revenue: opening a second studio, launching a membership, or running a big campaign.
Worked example: a gym's membership push (illustrative)
A gym spends A$60,000 net cash over six months on a new reformer room, a marketing campaign and an extra instructor. Over the same six months it adds 140 members at A$60 a month ex GST, and loses 40.
Net new members: 100. Net new annual recurring revenue: 100 × A$60 × 12 = A$72,000.
Burn multiple: A$60,000 ÷ A$72,000 = 0.83x. On Sacks' scale, that's amazing. Every dollar spent bought more than a dollar of recurring revenue.
If it had lost 90 members instead of 40, net new ARR would be A$36,000 and the multiple would be 1.67x. Still okay, but nearly twice as expensive.
Use it as a gut check before you spend. Ask: for this project, how much new recurring revenue will I add, net of the members I'll lose? If the answer is less than a third of what you're spending, think hard.
For the cash-flow side of building recurring revenue, the subscription cash flow guide explains why moving from one-off sales to subscriptions can feel tight before it feels good.
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What drives a high burn multiple?
Churn
As the worked example shows, churn comes straight out of net new ARR. If you're losing customers as fast as you win them, no amount of spending will fix your burn multiple. Start with the churn rate and work backwards.
Low expansion
Expansion ARR is the cheapest ARR there is. In Chapter 4 of the book I showed how Snowflake and JFrog, with net dollar retention of 158% and 139% at their IPOs, grew fast partly because existing customers kept spending more. High net revenue retention is one of the best burn multiple medicines you can take.
Slow payback
If it takes 24 months to earn back acquisition cost, you're funding two years of every customer before they contribute. Long CAC payback and a high burn multiple usually travel together.
Spending on the wrong things
The cheapest growth I know comes from referrals, community and word of mouth. That's the whole idea behind the shoestring chapter of the book, and the shoestring growth guide has the techniques.
What are the common burn multiple mistakes?
- Using gross new ARR. It must be net of churn and contraction.
- Counting investment as income. Money raised isn't operating cash.
- Using bookings instead of ARR. A three-year contract signed today is one year of ARR, not three.
- Calculating it monthly. Too noisy. Use a quarter or trailing 12 months.
- Ignoring it because you're "early." Sacks allows a high multiple early on, but it should trend down every quarter.
How does burn multiple connect to the other metrics?
Burn multiple sits beside the Rule of 40 as an investor's efficiency check. The Rule of 40 tells you whether growth and profit are balanced. Burn multiple tells you what the growth is costing in cash. A company can pass the Rule of 40 on growth alone while still burning heavily, and burn multiple is how you catch that.
What should you do next?
- Calculate net burn for the last quarter (or last 12 months).
- Calculate net new ARR for the same period, after churn.
- Divide. Where do you sit on Sacks' scale?
- Now rerun it with churn halved. How much better does it look?
If the answer surprises you, your best growth investment probably isn't more marketing. It's keeping the customers you've already paid to win.
Frequently asked questions
What's the difference between burn multiple and burn rate?
Burn rate is how much cash you lose each month. Burn multiple compares that loss with the recurring revenue it bought. Two companies can both burn $200,000 a month, but if one adds $200,000 of net new ARR a month and the other adds $50,000, the first has a burn multiple of 1x and the second 4x. Same burn rate, very different businesses.
Is burn multiple the same as Bessemer's efficiency score?
It's the inverse. Bessemer's efficiency score is net new ARR divided by net burn, so higher is better. David Sacks flipped it so burn sits on top, because he wanted the focus on how much cash growth consumes. A burn multiple of 2x equals an efficiency score of 0.5.
Should I calculate burn multiple monthly, quarterly or annually?
Quarterly or trailing 12 months. Monthly figures are too noisy, because one large deal or one big invoice can swing the result. Sacks' own examples use a quarter. If you have lumpy annual contracts, use trailing 12 months so the timing of renewals doesn't distort the picture.
Does raising prices improve burn multiple?
Usually, yes. A price rise on existing customers adds ARR with almost no extra spend, so net new ARR goes up while burn barely moves. That's why expansion and price increases are so powerful for capital efficiency. The risk is churn: if the rise pushes customers out, the lost ARR comes straight back off the total.
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Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- David Sacks, The Burn Multiple (Craft Ventures, 23 Apr 2020)
- SaaS Capital, 2026 Spending Benchmarks for Private B2B SaaS Companies
- High Alpha, 2025 SaaS Benchmarks Report
- ARR Club, Payhawk ARR surpasses $100M
- The Subscription Playbook, Robert Coorey (2022), Chapter 1
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.