⚡ Quick answer
The Burn Multiple is calculated by dividing Net Burn by Net New ARR, indicating capital efficiency in generating revenue.
Burn Multiple
Net burn divided by net new ARR—capital efficiency of growth.
📖 What it is
The Burn Multiple is a crucial metric for SaaS startups, representing the relationship between net burn and net new Annual Recurring Revenue (ARR). This ratio indicates how efficiently your company is using its capital to generate new revenue.
To use this tool, input your net burn amount and your net new ARR. The Burn Multiple will help you understand how many dollars you are burning for every dollar of new ARR. A lower multiple suggests greater capital efficiency, which is vital for sustainable growth.
Keep in mind that this metric assumes consistent reporting periods and that your net new ARR accurately reflects your growth without accounting for churn. It's essential to use net figures, not gross bookings, to get a true picture of your financial health.
How to use
- Determine your net burn for the period.
- Calculate your net new ARR for the same period.
- Divide the net burn by the net new ARR.
- Analyze the Burn Multiple to gauge growth efficiency.
- Use the result to inform financial strategy and investment decisions.
📐 Formulas
- Burn Multiple—Burn Multiple = Net Burn ÷ Net New ARR
- Net Burn—Net Burn = Total Expenses - Total Revenue
- Net New ARR—Net New ARR = New ARR - Churned ARR
💡 Example
If your net burn is $400k and your net new ARR is $200k this quarter:
Burn Multiple = $400k ÷ $200k
The resulting burn multiple is 2.0, indicating that for every dollar of new ARR, you are burning two dollars.
Real-life examples
Example 1: SaaS Startup A
Net Burn: $400k, Net New ARR: $200k, Burn Multiple: 2.0 (burning $2 for every $1 of new ARR).
Example 2: SaaS Startup B
Net Burn: $300k, Net New ARR: $150k, Burn Multiple: 2.0.
Example 3: SaaS Startup C
Net Burn: $600k, Net New ARR: $300k, Burn Multiple: 2.0.
Scenario comparison
- High Burn Multiple—Indicates inefficient use of capital, potentially unsustainable growth.
- Optimal Burn Multiple—Suggests a balanced approach, effectively turning burn into new revenue.
- Low Burn Multiple—Reflects excellent capital efficiency, but may indicate slower growth.
Common use cases
- Evaluate financial health of a SaaS startup.
- Compare growth efficiency across different SaaS companies.
- Inform investor decisions based on capital utilization.
- Set benchmarks for future funding rounds.
- Adjust business strategies to improve revenue generation.
- Analyze the impact of operational changes on growth efficiency.
- Identify trends in capital efficiency over time.
- Guide pricing strategies based on revenue generation capabilities.
How it works
The Burn Multiple is derived from dividing net burn by net new ARR, providing insight into capital efficiency—lower values indicate better performance.
What it checks
This tool checks the ratio of net burn to net new ARR, revealing your growth's capital efficiency.
Signals & criteria
- Net burn
- Net new ARR
- Multiple
Typical errors to avoid
- Mixing quarterly burn with monthly ARR.
- Using gross bookings instead of net new ARR.
- Ignoring churn in ARR.
Decision guidance
Trust workflow
Recommended steps after getting a result:
- Gather accurate financial data for net burn and net new ARR.
- Ensure periods for burn and ARR are matched (monthly or quarterly).
- Calculate the Burn Multiple and analyze the outcome.
FAQ
FAQ
Annual vs monthly?
Use the same period for burn and ARR delta.