Formula
burn multiple = net burn / net new ARR
Burn multiple
Burn multiple is the amount of cash a company burns to add one unit of new annual recurring revenue, and it measures capital efficiency in a single ratio.
Worked example
Burning €300,000 in a quarter while adding €200,000 of net new ARR gives a burn multiple of 1.5: €1.50 spent per recurring euro gained.
Benchmark
Under 1x exceptional · 1 to 1.5x great · 1.5 to 2x good · 2 to 3x suspect · above 3x trouble past seed.
All startup finance benchmarks →David Sacks popularised the metric in 2020. It caught on because it compresses product, pricing, sales and retention into one number and answers a single question: what does a euro of growth cost you?
Churn attacks it twice, because the denominator is net new ARR. You spend to win a customer, then lose the ARR they carried, so the same burn produces a smaller number underneath it. This is why efficiency conversations so often turn out to be retention conversations.
Common questions
What is a good burn multiple?
Under 1x is exceptional, 1 to 1.5x great, 1.5 to 2x good, 2 to 3x suspect, and above 3x signals trouble at any stage past seed. Early companies run hotter while finding their sales motion, and the benchmarks loosen somewhat in downturns.
What is the difference between burn rate and burn multiple?
Burn rate measures how much cash you lose per month; burn multiple measures what that burn buys, by dividing it by net new ARR. A company can have a modest burn rate and a terrible burn multiple if the spending produces little new recurring revenue.
Why does churn make burn multiple worse?
Because the denominator is net new ARR, churn hits twice: you spend to acquire customers, then lose the ARR that departing ones carried. The same burn divided by a smaller net figure produces a worse multiple, which is why fixing retention often improves it faster than cutting costs.
Related terms
Keep this number live
Plainhub computes burn multiple from money you record in plain words, so it is current when you need it rather than the night before a board meeting.
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