How to Calculate Burn Multiple

The Burn Multiple is a capital efficiency metric that measures how much cash a startup burns for every dollar of Net New ARR it adds. Popularized by David Sacks, it is one of the most important metrics for venture-backed companies because it reveals whether a startup’s growth is ‘efficient’ or ‘bought’ at an unsustainable cost. The formula is Net Burn divided by Net New ARR. A Burn Multiple of 1.0 or lower is considered ‘Amazing,’ meaning you are adding a dollar of recurring revenue for every dollar you spend. A multiple of 3.0 or higher is a red flag, indicating that the company is highly inefficient and likely overspending on sales and marketing relative to its growth. The Burn Multiple is particularly useful for founders preparing for a fundraise, as it serves as a ‘Quality Score’ for the startup’s growth engine. Improving the Burn Multiple requires either increasing the velocity of new sales or aggressively cutting operational expenses to reduce the monthly net burn.