About the Burn Multiple Calculator
The Burn Multiple calculator gives startup founders and investors a single efficiency metric for growth: how many dollars of cash the company burns to generate each dollar of net new annual recurring revenue. It divides net cash burn by net new ARR over the same period and also returns a qualitative rating band drawn from a framework popularized in the startup investing community. This makes it a quick way to judge whether a company's growth is being bought efficiently or at an unsustainable cash cost.
How It Works
You enter Net Cash Burn and Net New ARR for the same period. The calculator divides burn by net new ARR to produce the burn multiple, then assigns a rating label based on where that number falls: below 1x is labeled Amazing, below 1.5x Great, below 2x Good, below 3x Suboptimal, and 3x or above Concerning. It returns an error if net new ARR is zero or negative, since a burn multiple cannot be meaningfully calculated without positive revenue growth in the denominator.
Formula & Methodology
Calculating this by hand starts with pulling net cash burn, cash out minus cash in, for a defined period such as a quarter, directly from the company's cash flow statement. Then find net new ARR added over that exact same period, meaning the increase in annualized recurring revenue after accounting for churn and downgrades, not just new sales. Dividing burn by that net new ARR figure gives the multiple: a value under 1 means the company added more than a dollar of new ARR for every dollar burned, while a value above 3 means it took more than three dollars of burn to add one dollar of new ARR.
Examples
Efficient Growth Quarter
With $400,000 in net cash burn and $500,000 in net new ARR added in the same quarter, the burn multiple is $400,000 / $500,000 = 0.80x, which the calculator rates Amazing.
Cash-Heavy Growth Quarter
A company burning $900,000 in cash while adding only $300,000 in net new ARR has a burn multiple of $900,000 / $300,000 = 3.00x, which the calculator rates Concerning.
Advantages
- Combines cash burn and revenue growth into one ratio, making it faster to compare growth efficiency across quarters or against other companies than looking at burn and ARR separately.
- Attaches a plain-language rating band to the raw number, making the result easier to communicate to a board or investor without extra interpretation.
- Requires only two inputs that most startups already track internally, so it can be recalculated every reporting period with minimal extra work.
Common Mistakes
- Using gross new bookings instead of net new ARR, after churn and downgrades, which understates the true burn multiple and makes growth look more efficient than it is.
- Comparing burn multiples across companies at very different stages, since early-stage companies investing heavily in product typically run higher multiples than more mature ones.
- Treating a single quarter's burn multiple as a permanent verdict rather than tracking the trend across several periods, since one unusual quarter, such as a large one-time expense or a big enterprise deal, can distort a single reading.
Edge Cases to Watch For
- Net New ARR must be greater than zero; the calculator returns an error rather than a result if net new ARR is zero or negative, since flat or shrinking ARR makes the ratio undefined or not meaningful.
- The rating bands, Amazing, Great, Good, Suboptimal, and Concerning, are drawn from a general framework popularized by investor David Sacks, not a universal standard, so context like company stage and industry still matters when interpreting the label.
- Net New ARR should already be net of churn and contraction, not just new bookings; using gross new ARR instead of net will produce an artificially low, overly flattering burn multiple.
- The metric only measures cash efficiency of revenue growth for the period entered; it says nothing about total remaining cash runway on its own.
Common Use Cases
- Startup founders monitoring whether recent spending increases are translating into proportional revenue growth.
- Venture investors screening portfolio companies or prospective investments for capital efficiency alongside growth rate.
- Finance teams preparing board materials that need a concise, standardized efficiency metric to accompany raw burn and ARR figures.