Startup metrics
Burn multiple calculator
Burn multiple asks a simple question: how many dollars do you burn for each new dollar of recurring revenue?
Reading bands follow the widely used scale from investor David Sacks: under 1 excellent, 1 to 1.5 great, 1.5 to 2 good, 2 to 3 needs work, above 3 too high.
How it works
Burn multiple is net burn divided by net new ARR over the same period. It captures sales efficiency, product pricing and spending discipline in one number.
Investors use it to compare companies at different sizes. A lower number means each dollar of funding buys more growth.
The formula
- Pick a periodA quarter or a year; use the same period for both numbers.
- Net burnCash out minus cash in from operations.
- DivideBurn multiple = net burn / net new ARR.
Worked example
$3 million of net burn and $2 million of net new ARR in a year give a burn multiple of 1.5.
Put the numbers in your data room
Put the inputs (monthly burn and the ARR bridge) in the metrics folder of the data room. Investors will recompute the multiple and compare it with your deck.
Burn multiple calculator FAQ
What is a good burn multiple?
Below 1.5 is strong for most growth-stage software companies; early companies can run higher.
Should I use net new ARR or revenue?
Net new ARR: new and expansion ARR minus churn and contraction.
Can the burn multiple be negative?
If the company is profitable, burn is negative and the metric stops being useful.