Burn Multiple

Growth on its own hides waste. Two businesses can both add 200,000 euros of ARR, yet one burned 200,000 euros to do it and the other burned 800,000 euros. The burn multiple makes that gap visible. Lower is better. As a rough guide, under 1 is excellent, up to 2 is good and above 3 is a warning. Treat those bands as rules of thumb, because stage and market change what is normal. A business that is cash-positive has no burn, so the multiple stops being useful.

• Calculate it each quarter or over a rolling twelve months. New revenue arrives in lumps, so a single month misleads.
• Use net new ARR, after cancellations. Counting only gross new sales flatters the result.
• When the number rises, find the cause: a sales hire still ramping, a channel that got more expensive, or rising churn.
• Read it beside CAC payback period, which shows how long each customer takes to repay what they cost.

Burn multiple equals net burn divided by net new annual recurring revenue (ARR). Net burn is cash spent minus cash received. Net new ARR is the recurring revenue from new customers and upgrades, minus what was lost to cancellations and downgrades. The investor David Sacks popularised the measure as a fast test of how efficiently a company turns cash into growth.

Say a business burns 400,000 euros over a year and ends it with 200,000 euros more ARR than it started with. Its burn multiple is 2.0. Every euro of new recurring revenue cost two euros of cash.

• Using total revenue or one-off project income instead of recurring revenue.
• Comparing an early-stage company with a mature one, since early figures swing on a single deal.
• Reading one quarter as a trend.