Burn Multiple
Also known as: Net Burn Multiple, Cash Efficiency
Definition
Burn multiple equals net cash burn divided by net new ARR over the same period. A company burning $2M to add $1M of net new ARR has a 2.0x burn multiple. Lower is generally better, but interpretation depends on stage, gross margin, retention, and market timing.
Burn multiple is useful because it forces growth and cash into the same sentence. A company can have strong ARR growth and still destroy value if the cost to acquire that growth is structurally too high.
For turnaround work, the first question is whether burn is funding repeatable growth, temporary recovery, or operating leakage. The answer determines whether the company needs capital, cost reduction, pricing work, or a rebuilt go-to-market model.
Related terms
- ARR and MRR — Annual recurring revenue and monthly recurring revenue. The recurring-revenue base that buyers normalize before valuing a software or tech-enabled services company.
- CAC Payback — The number of months a SaaS firm needs to recover the fully-loaded sales-and-marketing cost of acquiring a customer. The leading indicator of capital efficiency.
- Rule of 40 — The heuristic that growth rate plus EBITDA margin should sum to at least 40% for a SaaS firm to merit premium valuation. The floor for institutional capital interest.
Where this gets applied
- Unit Economics — CAC payback, NRR, gross margin by segment, cohort analysis, paid-on-bookings vs. paid-on-cash.
- Financial Infrastructure — ARR waterfalls, deferred-revenue rules, board-pack standardization, FP&A architecture.