Definition
Burn multiple measures growth efficiency: how much net cash you burn to generate $1 of net new ARR. It is commonly tracked quarterly to reduce noise from timing.
Formula
Burn multiple = net burn / net new ARR
How to calculate it
- Compute net burn for the period (cash outflows minus inflows).
- Compute net new ARR for the same period (change in ARR after churn and expansions).
- Divide net burn by net new ARR to get burn multiple.
How to interpret burn multiple
- Lower burn multiple indicates more efficient growth.
- Very low numbers can still hide churn if net new ARR is inflated by timing.
- Compare to prior periods and segments, not just a single snapshot.
Relationship to Rule of 40
Burn multiple focuses on cash efficiency, while Rule of 40 balances growth and profitability. A company can score well on Rule of 40 but still have a weak burn multiple if cash burn is high.
How to improve burn multiple
- Reduce churn to protect net new ARR.
- Improve payback by focusing spend on higher LTV cohorts.
- Align sales efficiency with product-market fit before scaling.
Operational checkpoints
- Track burn multiple quarterly to smooth timing noise.
- Reconcile net new ARR to your ARR waterfall inputs.
- Tie spend changes to cohort quality, not only short-term ROAS.
Benchmarks (directional)
- Lower is better; many teams target below 2.0 in stable growth phases.
- Very low numbers can hide deferred churn or a temporary billing spike.
- Use your own trendline and segment mix as the primary benchmark.
Burn multiple vs payback
Burn multiple is a cash efficiency snapshot. Payback measures how fast you recover CAC. Use both: burn multiple for portfolio-level efficiency, payback for unit-level cash recovery.
Data hygiene checks
- Use the same period for burn and ARR movements (monthly or quarterly).
- Remove one-time revenue items from ARR inputs.
- Tie net burn to cash flow statements to avoid double counting.
Common mistakes
- Using mismatched time windows for burn and ARR.
- Letting annual prepay timing distort short measurement windows.
- Ignoring retention quality (burn multiple can improve temporarily if churn is hidden).