Burn multiple calculator.
Burn multiple is net burn divided by net new annual recurring revenue over the same period; lower is better. Burning $1.5 million in a quarter while ARR grows from $4 million to $5 million gives a burn multiple of 1.5x, or about 67 cents of new ARR for every dollar burned.
Burn multiple
1.5x
- Net new ARR
- $1,000,000
- New ARR per dollar burned
- $1
Indicative result from the numbers you enter. Not financial, tax or legal advice.
How it is calculated.
- Net new ARR = ARR at the end - ARR at the start, after churn and contraction.
- Burn multiple = net burn / net new ARR, for the same period.
- New ARR per dollar burned = net new ARR / net burn, the same ratio turned around.
- When ARR is flat or falling, the multiple has no meaningful value and the tool shows 0.
Worked example.
One quarter at $4M ARR
| Step | Working |
|---|---|
| Net new ARR | $5,000,000 - $4,000,000 = $1,000,000 |
| Burn multiple | $1,500,000 / $1,000,000 = 1.5x |
| New ARR per dollar | $1,000,000 / $1,500,000 = $0.67 |
Where the metric comes from.
David Sacks of Craft Ventures popularized the burn multiple in 2020 as a single check on how much cash a company spends to add each dollar of recurring revenue. It catches both slow growth and heavy spending in one figure, which is why investors ask for it in tighter markets.
Rough ranges.
The scale Sacks published reads under 1x as excellent, 1x to 1.5x great, 1.5x to 2x good, 2x to 3x worth questioning and above 3x poor. Early companies usually run higher multiples than scaled ones, so investors compare you with companies at a similar ARR rather than with the scale alone.
Measure it over a fair period.
One quarter can swing on a single large contract or an annual prepayment. Look at the trend over three or four quarters and use a trailing twelve months if your sales are lumpy.
Common mistakes.
- Using gross new bookings instead of net new ARR after churn and contraction.
- Mixing periods, such as a year of burn against a quarter of new ARR.
- Counting one-off services revenue as recurring.
- Leaving out cash spent on capital items or capitalized software that still left the bank.