Burn Multiple
Short Explanation: Burn multiple is an efficiency metric that shows how much net cash burn you need to create one unit of net new ARR.
In-Depth Explanation
Burn multiple is common in B2B SaaS and recurring-revenue businesses. It connects two things investors and leaders watch closely: growth and cash. The basic idea: if you burn a lot of cash for little new recurring revenue, efficiency is low. If you add strong recurring revenue with low burn, efficiency is high. Teams use burn multiple to compare performance across quarters, to evaluate go-to-market spend, and to spot when growth is getting too expensive.
How it Works:
- Measure net burn: Calculate net cash burn for the period (cash out minus cash in from operations, often taken from the cash flow statement).
- Measure net new ARR: Calculate net new annual recurring revenue in the same period (new ARR plus expansion minus churn/downsells).
- Compute the ratio: Burn Multiple = Net Burn / Net New ARR.
- Interpret the result: A lower number means better efficiency. A higher number means you are spending more cash for each unit of new ARR.
- Use it with context: Compare within the same business model and stage, and pair it with retention and margin to avoid false conclusions.
Real-Life Example
A SaaS company burns €2,000,000 net cash in a quarter and adds €1,000,000 net new ARR in the same quarter. The burn multiple is 2.0. Next quarter, the company tightens discounting, improves onboarding, and reduces churn. Net burn stays at €2,000,000, but net new ARR rises to €1,500,000. The burn multiple improves to 1.33, meaning the company now creates more recurring revenue per euro burned.