Burn Multiple: How to Calculate It and Judge Your Number

Use these steps over the same period, usually a quarter or a trailing twelve months:

1. Calculate net burn: cash out minus cash in from operations (not counting financing).
2. Calculate net new ARR: new ARR plus expansion, minus churned and contracted ARR.
3. Divide net burn by net new ARR.

Say your company burned $375,000 in a quarter, added $600,000 of new ARR and expansion, and lost $150,000 to churn and downgrades. In this example, net new ARR is $450,000 and burn multiple is 375,000 divided by 450,000, or about 0.83. If net new ARR were zero or negative, the ratio isn't meaningful, and the honest conclusion is that you're burning cash without growing.

Quarterly figures can swing because deals close in bunches, so look at the trailing four quarters alongside the quarter. A single strong or weak quarter says little, while four quarters show whether efficiency is really changing.

Use the same period for both numbers, and use cash burn, not accounting loss, so that timing differences don't distort it.

There's no single threshold that applies to every company, so judge it three ways. First, compare it with your own trend: a ratio that falls quarter after quarter is a healthier signal than one that jumps around. Second, compare it with your stage: early companies usually spend more per dollar of new ARR while they find a repeatable motion, and investors generally expect the ratio to come down as you scale. Third, tie it to a growth plan.

For context on growth, SaaS Capital found median ARR growth of 25 percent among private B2B SaaS companies in 2024¹. Say you start the year at $4,000,000 of ARR and grow at that rate. In this example, net new ARR is $1,000,000, and if you burn $1,500,000 to get there, your burn multiple is 1.5. If your growth needed $2,500,000 of burn instead, it would be 2.5, and you'd want to know why.

A high number isn't automatically a failure. A company investing ahead of a large opportunity may accept a higher multiple for a while, as long as it can explain what the spend buys and when the ratio should fall.

Look at both halves of the ratio:

• Raise net new ARR: improve win rates, reduce churn, push expansion in existing accounts, and revisit pricing. Retention is the cheapest source of net new ARR.
• Cut net burn without hurting growth: delay hires that don't drive revenue, renegotiate cloud and software costs and cut unproductive marketing channels.
• Improve collections: annual prepaid billing brings cash forward and lowers net burn without changing ARR.
• Shorten sales cycles: less time from spend to closed revenue.

Compare with unit economics: a poor burn multiple can come from a long CAC payback or high churn. The rule of 40 gives another view of growth against profitability.

Burn multiple links growth to cash, so it connects directly to how long your money lasts. If you plan to reach a growth target, your multiple tells you roughly how much cash that will take. Say you want to add $2,000,000 of net new ARR next year at a burn multiple of 1.5. In this example, you'd need about $3,000,000 of net burn, so if you have $2,400,000 of cash the plan doesn't work without either raising more or improving efficiency.

Use it with the cash runway calculator and the deeper discussion in burn multiple benchmarks and runway forecasting. If you're weighing financing to bridge a gap, see how venture debt options compare.

Avoid these:

• Using accounting loss instead of cash burn.
• Counting gross new ARR and ignoring churn.
• Mixing periods, such as a quarter of burn against a year of ARR.
• Including one-time items such as a large annual prepayment or a fundraise in cash burn.
• Comparing your number with companies at a very different ARR stage.

Keep a monthly table so you can see the trend and spot which quarter pushed the multiple up. Bank data makes the cash side easy to verify, and a connected accounting file makes ARR movements easier to tie back to invoices.