Burn Multiple: What It Measures and How to Calculate It Right

The burn multiple answers one question: how much cash does it take to add a dollar of recurring revenue? It was popularized by investor David Sacks of Craft Ventures in 2020 as a single measure of capital efficiency, and it has since become a standard line in board decks and fundraising diligence.

The formula

Burn multiple = net burn ÷ net new ARR, for the same period.

• Net burn is cash out minus cash in from operations, excluding financing (equity raised and debt drawn). On the cash flow statement, it is roughly operating cash flow plus capital expenditures, as a positive number when cash is falling.
• Net new ARR is ending ARR minus starting ARR: new plus expansion minus contraction and churn, straight from your ARR bridge.

A company that burned $1.5M in a quarter and added $1.2M of net new ARR has a burn multiple of 1.25x.

How it is read

Sacks' original scale is still the common reference point:

Earlier-stage companies usually run higher multiples while they find repeatable growth; the trend matters as much as the level.

Errors that make the number lie

1. Using GAAP net loss instead of cash burn. Non-cash items (stock comp, depreciation) and working capital swings make net loss a poor proxy.
2. Ignoring annual prepayments. A big annual billing quarter shrinks burn and flatters the multiple; the next quarter reverses it. Use trailing periods.
3. Including financing. Debt draws and equity are not reductions of burn.
4. Loose ARR definitions. If services or usage spikes inflate net new ARR, the multiple looks better than reality. Fix the ARR definition first.

The levers

• Gross margin. Hosting, support and onboarding costs scale with revenue; every point of margin lowers burn at the same growth.
• Sales efficiency. CAC payback and win rates drive how much spend each dollar of new ARR needs.
• Retention. Churn and contraction are subtracted from the denominator. Improving gross revenue retention is often the cheapest way to improve the multiple.
• Collections. Faster cash collection on annual contracts reduces net burn without changing the P&L.

Building it into the monthly pack

We calculate burn multiple on a trailing basis from the cash flow statement and the ARR bridge, show it next to runway and CAC payback, and annotate the quarters where prepayments or one-time items distort it. That way the number in the board deck matches the number a diligence team will rebuild.

Burn multiple by stage

Context matters when reading the number:

• Seed and early Series A: higher multiples are common while the company searches for repeatable acquisition. Directors focus on whether the trend is improving.
• Series B and later: investors expect the multiple to come down as sales efficiency and retention mature.
• Downturns and tight funding markets: capital efficiency weighs more heavily in valuation, and a lower multiple can matter as much as growth rate.

Pairing it with other metrics

Burn multiple combines growth and spending into one ratio, so pair it with metrics that show why it moved: CAC payback for sales efficiency, NRR for retention and gross margin for the cost to serve. A falling multiple driven by better retention is more durable than one driven by a one-time cut in marketing.

Showing it to the board

Show the trailing four quarters, the components (net burn and net new ARR) next to the ratio, and a note on anything unusual such as a large annual prepayment or a one-time expense. Directors trust a metric more when they can see its parts.

Sources

• SEC, Commission Guidance on Management's Discussion and Analysis (key performance indicators and metrics), Release 33-10751 (PDF)
• FASB Accounting Standards Codification, Topic 230, Statement of Cash Flows