{"schema":"askedwell-answer-v1","url":"https://askedwell.com/pages/what-is/burn-multiple","question":"What is burn multiple?","short_answer":"Burn multiple is net cash burned divided by net new ARR added in a period — how much you spend to add one dollar of recurring revenue. Formula: net burn ÷ net new ARR. Coined by David Sacks and tracked by Bessemer. Under 1× is amazing, 1–1.5× great, over 3× bad. It is the cleanest single measure of growth efficiency.","long_answer":"**The formula**\n\n```\nBurn Multiple = Net burn / Net new ARR\n```\n\nBoth over the same period (usually a quarter or year). It answers one question: for every dollar of new recurring revenue you added, how many dollars of cash did you burn to get it?\n\n**The benchmark scale (Sacks / Bessemer)**\n\n| Burn Multiple | Rating |\n|---|---|\n| < 1× | Amazing |\n| 1 – 1.5× | Great |\n| 1.5 – 2× | Good |\n| 2 – 3× | Suspect |\n| > 3× | Bad — burning a lot to grow a little |\n\nA 1× burn multiple means you burned $1 to add $1 of new ARR; 3× means $3 for the same dollar — a signal that acquisition or retention is leaking.\n\n**Why it beats raw growth rate**\n\nGrowth rate alone rewards \"growth at any cost\" — a company can post 200% growth while burning unsustainably. Burn multiple normalizes growth by its cash cost, exposing whether growth is *efficient*. Two companies growing ARR equally fast can have wildly different burn multiples; the lower one is building a more durable business.\n\n**Worked example**\n\nA startup burns $4M net in a year and adds $2M of net new ARR → burn multiple = 2.0× (suspect). If it tightens spend and the next year burns $3M to add $3M ARR → 1.0× (great). Same company, much healthier trajectory — visible in one number.\n\n**How it sits with the other cash metrics**\n\n- **Burn rate** = speed of spend (per month)\n- **Runway** = cash ÷ net burn (months left)\n- **Burn multiple** = net burn ÷ net new ARR (efficiency of growth)\n- **Rule of 40** = growth % + profit margin % ≥ 40 (balance of growth and profitability)\n\nBurn rate and runway tell you *how long you last*; burn multiple tells you *how well you convert cash into recurring revenue*. Investors increasingly lead with burn multiple because it is hard to game.\n\n**When it misleads**\n\nLumpy enterprise deals distort a single quarter (one large contract can flatter the multiple; a slow quarter punishes it). Read it as a trailing-twelve-month figure, and pair it with net revenue retention to separate new-logo efficiency from expansion.\n\n**Cross-reference:** see /pages/what-is/burn-rate + /pages/what-is/runway + /pages/what-is/annual-recurring-revenue.","duration_iso":"PT0M","ranges":[{"condition":"Formula","duration":"Net burn / Net new ARR"},{"condition":"Amazing","duration":"< 1×"},{"condition":"Great","duration":"1 – 1.5×"},{"condition":"Suspect","duration":"2 – 3×"},{"condition":"Bad","duration":"> 3× (lots of cash for little ARR)"}],"variables":[{"name":"Net new ARR quality","effect":"Expansion ARR is cheaper than new-logo ARR; a low burn multiple driven by expansion is healthier"},{"name":"Deal lumpiness","effect":"One large enterprise deal can flatter (or a slow quarter punish) a single period — use trailing-twelve-month"},{"name":"Spend discipline","effect":"Cutting inefficient S&M lowers net burn without proportionally lowering net new ARR → multiple improves"},{"name":"Retention","effect":"High churn shrinks NET new ARR (gross new − churned), inflating the multiple even at constant spend"}],"sources":[{"label":"David Sacks, \"The Burn Multiple\"","tier":2,"url":"https://sacks.substack.com/p/the-burn-multiple","note":"Origin + canonical benchmark scale for the metric"},{"label":"Bessemer Venture Partners \"State of the Cloud\"","tier":1,"url":"https://www.bvp.com/atlas","note":"Burn-multiple benchmarks across public + private SaaS"},{"label":"Andreessen Horowitz, \"16 Startup Metrics\"","tier":2,"url":"https://a16z.com/2015/08/21/16-metrics/","note":"Capital-efficiency metrics in the SaaS canon"},{"label":"Aswath Damodaran, NYU Stern","tier":1,"url":"https://pages.stern.nyu.edu/~adamodar/","note":"Cash-efficiency + growth-vs-profitability frameworks"}],"faq":[{"question":"How do I calculate burn multiple?","answer":"Divide net cash burned by net new ARR over the same period: Burn Multiple = Net burn ÷ Net new ARR. If you burned $4M and added $2M of net new ARR in a year, the multiple is 2.0×. \"Net new ARR\" is gross new ARR minus churned ARR, so high churn inflates the multiple even if spend is constant."},{"question":"What is a good burn multiple?","answer":"On the Sacks/Bessemer scale: under 1× is amazing, 1–1.5× is great, 1.5–2× is good, 2–3× is suspect, and over 3× is bad. The number is how many dollars of cash you burn to add one dollar of recurring revenue, so lower is better. Read it trailing-twelve-month to smooth out lumpy enterprise deals."},{"question":"Why is burn multiple better than growth rate?","answer":"Growth rate alone rewards growth at any cost — a company can grow 200% while burning unsustainably. Burn multiple normalizes growth by its cash cost, revealing whether the growth is efficient. Two companies growing ARR at the same rate can have very different burn multiples; the lower one converts cash into recurring revenue more efficiently and is building a more durable business."},{"question":"How does burn multiple relate to burn rate and runway?","answer":"Burn rate is the speed you spend cash per month; runway is cash ÷ net burn (months of life left); burn multiple is net burn ÷ net new ARR (the efficiency of turning cash into recurring revenue). Burn rate and runway tell you how long you survive; burn multiple tells you how well you grow. Investors increasingly lead with burn multiple because it is hard to game."}],"keywords":["burn multiple","what is burn multiple","burn multiple formula","capital efficiency","net new ARR","David Sacks burn multiple","SaaS efficiency"],"category":"business","date_published":"2026-05-29","date_modified":"2026-05-29","license":"CC-BY-4.0","attribution":"https://askedwell.com"}