David Sacks popularized Burn Multiple as a metric that cuts through growth rate optimism to reveal the actual efficiency of a business. The formula is simple: net burn (cash spent minus cash earned) divided by net new ARR added in the same period.
If you burn $500K in a quarter and add $250K of net new ARR, your burn multiple is 2.0. You're spending $2 for every $1 of new ARR. If you burn $300K and add $400K of net new ARR, your burn multiple is 0.75 — you're generating new ARR more efficiently than you're spending capital.
The benchmarks: under 1.0 is exceptional. 1.0-1.5 is good. 1.5-2.0 is acceptable in early-stage companies investing ahead of revenue. Above 2.0 needs a compelling explanation. Above 3.0 is a burning platform.
What makes burn multiple more useful than growth rate:
It penalizes growth that's purchased inefficiently. A company growing 100% by spending $10 for every $1 of ARR is not a healthy business. Burn Multiple exposes this in a way that raw growth rate doesn't.
It creates a direct link between spend decisions and ARR outcomes. When leadership understands that every $1M in headcount investment needs to generate $500K-$1M of incremental ARR to maintain a good burn multiple, hiring decisions become more rigorous.
It works across different business models. PLG companies, sales-led companies, and hybrid models all have different CAC and growth dynamics. Burn Multiple normalizes across them.
Common calculation mistakes to avoid: using gross ARR instead of net ARR (must account for churn), excluding commission and bonus from burn (must be fully-loaded), and using trailing revenue instead of net new ARR added (measure the flow, not the stock).
Calculate it monthly. Trend it. Set a target and hold to it.