SaaS Metric
Burn Multiple
Definition
The burn multiple measures capital efficiency: how much cash you burn to add one dollar of new annual recurring revenue. Burn multiple = net burn ÷ net new ARR. Lower is better — under 1x is excellent, while above 2x means you are spending more than two dollars to generate each dollar of new recurring revenue, which is hard to sustain.
Formula
Burn multiple = net cash burn ÷ net new ARR (over the same period)
Benchmark
Popularized by David Sacks: under 1x is great, 1–1.5x is good, 1.5–2x is suspect, and above 2x is a warning sign. Lower is always better.
Why investors watch it
The burn multiple is a blunt, hard-to-game read on efficiency: it takes all the cash you burned and divides it by all the new ARR you produced, so weak retention, bloated spend, or discounting all show up in a worse number. Because it uses net new ARR (which already nets out churn), a leaky retention bucket directly inflates the multiple.
It became a standard efficiency yardstick when capital tightened: when funding is cheap, growth at any cost can look fine, but the burn multiple exposes how much that growth actually costs in cash terms.
Frequently asked questions
What is a good burn multiple?
Using the widely cited bands: under 1x is excellent, 1–1.5x is good, 1.5–2x is suspect, and above 2x is a warning sign. The lower the multiple, the less cash you burn per dollar of new ARR.
How is the burn multiple calculated?
Divide net cash burn by net new ARR over the same period. Net new ARR already subtracts churn and contraction, so poor retention worsens the multiple even if gross new sales look strong.
How does churn affect the burn multiple?
Directly. Because the denominator is net new ARR, churned and contracted revenue reduces it, which raises the multiple. Improving retention increases net new ARR for the same burn and lowers the multiple — making retention a capital-efficiency lever, not just a revenue one.
Related metrics
Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the normalised yearly value of recurring subscriptions. Learn the ARR formula, how it differs from MRR and total revenue, and when to use it.
Expansion Revenue
Expansion revenue is additional recurring revenue from existing customers via upgrades, seats and cross-sells. Learn how it drives net negative churn and NRR above 100%.
SaaS Quick Ratio
The SaaS quick ratio measures growth efficiency: new + expansion MRR divided by churned + contraction MRR. Learn the formula, what a ratio of 4+ means, and benchmarks.
Net Revenue Retention (NRR)
Net revenue retention (NRR) measures recurring revenue kept from existing customers including expansion. Learn the NRR formula, what 100%+ means, and SaaS benchmarks.
Track this automatically
Connect Stripe and RetentionLens computes Burn Multiple for you — with cohorts, trends and churn-risk scoring. Start on the free tier.
Benchmarks are general SaaS ranges and vary by segment, stage and business model. Last reviewed 2026-05-30.