{
  "slug": "burn-multiple",
  "title": "Burn Multiple Calculator",
  "heading": "Burn Multiple Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/burn-multiple",
  "summary": "See how many dollars you burn to generate one dollar of net new ARR.",
  "description": "Burn multiple, popularized by investor David Sacks, divides net cash burned in a period by net new ARR added in that same period. It answers a capital-efficiency question that ARR growth rate alone can't: are you buying growth cheaply or expensively? A burn multiple under 1 is exceptional (rare outside of the best PLG or usage-based businesses); 1-1.5 is great; 1.5-2 is good; 2-3 is suspect and worth investigating; above 3 is bad and typically means either the go-to-market motion is broken or the company is over-hiring ahead of proven demand. Unlike magic number, which only looks at S&M spend, burn multiple captures total company cash burn including R&D and G&A, making it a more holistic (and harsher) efficiency check that investors use heavily in later-stage and growth-equity diligence, especially since 2022 when capital efficiency replaced growth-at-all-costs as the dominant investor lens.",
  "formula": "Burn Multiple = Net Cash Burned ÷ Net New ARR (same period)",
  "dateModified": "2026-09-30",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=burn-multiple",
  "inputs": [
    {
      "id": "netBurn",
      "label": "Net cash burned (period)",
      "kind": "number",
      "hint": null,
      "default": 1500000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "netNewArr",
      "label": "Net new ARR added (same period)",
      "kind": "number",
      "hint": null,
      "default": 1000000,
      "unit": "$",
      "min": 1,
      "max": null
    }
  ],
  "outputs": [
    {
      "id": "multiple",
      "label": "Burn Multiple",
      "format": "decimal",
      "hint": null,
      "primary": true
    },
    {
      "id": "rating",
      "label": "Efficiency rating",
      "format": "raw",
      "hint": null,
      "primary": false
    },
    {
      "id": "dollarsPerArrDollar",
      "label": "$ burned per $1 net new ARR",
      "format": "decimal",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Net cash burned (period): 1500000 $",
      "Net new ARR added (same period): 1000000 $"
    ],
    "outputs": [
      "Burn Multiple: 1.5",
      "Efficiency rating: Good",
      "$ burned per $1 net new ARR: 1.5"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter net cash burned (period) ($).",
      "Enter net new arr added (same period) ($).",
      "Read your burn multiple on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "netBurn": 900000,
        "netNewArr": 600000
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "netBurn": 1500000,
        "netNewArr": 1000000
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "netBurn": 2400000,
        "netNewArr": 1600000
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "How does burn multiple differ from magic number?",
      "a": "Magic number isolates sales and marketing efficiency specifically; burn multiple captures total company cash burn across R&D, G&A, and S&M against net new ARR. Burn multiple is the harsher, more complete number and is what most growth-stage investors actually underwrite to."
    },
    {
      "q": "What's a good burn multiple by growth stage?",
      "a": "Early-stage companies (under $5M ARR) chasing product-market fit can tolerate 2-3x since absolute dollars are small and finding fit matters more than efficiency. Growth-stage companies ($20M+ ARR) should be under 1.5x, and anything consistently above 2x at scale draws serious investor scrutiny."
    },
    {
      "q": "Can burn multiple be negative or undefined?",
      "a": "If net new ARR is zero or negative (the base shrank), burn multiple is undefined or meaningless — you're burning cash while going backward on revenue, which is worse than any positive multiple can express. Report ARR decline separately rather than forcing it into this ratio."
    },
    {
      "q": "Does a low burn multiple always mean a healthy company?",
      "a": "Not necessarily — a company can post a low burn multiple by underinvesting in growth (low burn, modest but 'efficient' ARR gains) while a faster-growing competitor with a higher multiple is building a bigger moat. Read burn multiple alongside absolute growth rate, not in isolation."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/sales-magic-number",
    "https://www.revenuelab.fyi/toolbox/saas-cash-runway-growth",
    "https://www.revenuelab.fyi/toolbox/saas-quick-ratio"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — Burn Multiple Calculator (https://www.revenuelab.fyi/toolbox/burn-multiple)"
}