Burn multiple formula (and what counts)

The most common definition is: Burn Multiple = Net Burn ÷ Net New ARR. Both values should describe the same time period. If you calculate net burn for Q3 but use net new ARR for the full year, you’ll get a number that looks precise but is meaningless. This is why investors often ask for the burn multiple “for the quarter” or “TTM.”

Net burn is how much cash your company consumed in the period. It’s often approximated as: Net Burn = Cash Outflows − Cash Inflows. In practice, teams compute net burn from the change in cash position: Net Burn ≈ Beginning Cash − Ending Cash (adjusting for financing events). It is not the same as GAAP operating loss because accounting includes non-cash items (like depreciation) and timing differences (like billed-but-uncollected revenue).

Net new ARR is the annualized increase in recurring revenue, after accounting for churn and downsells: Net New ARR = New ARR + Expansion ARR − Churn ARR − Contraction ARR. ARR (Annual Recurring Revenue) is usually derived from MRR: ARR = MRR × 12. If you’re not a subscription business, you can still use the concept by substituting “net new annualized recurring revenue” (for example, annualized contract value for recurring contracts).

If your net burn is $1,200,000 and you added $600,000 of net new ARR in the same period, your burn multiple is: $1,200,000 ÷ $600,000 = 2.0×. That means you burned $2 for every $1 of net new ARR. Lower is better because it implies your growth is being “paid for” more by product demand and efficient execution than by spend.

Three realistic scenarios

A B2B SaaS company burns $900k in a quarter and adds $750k of net new ARR. Burn multiple = 900k ÷ 750k = 1.2×. This usually signals healthy sales efficiency, strong retention, or expansion revenue doing meaningful work. The company may choose to invest more aggressively if pipeline quality remains strong.

Another company burns $1.4M and adds $500k net new ARR. Burn multiple = 1.4M ÷ 0.5M = 2.8×. This is not automatically “bad,” but it’s a warning light. Common culprits: high CAC, long ramp times, heavy discounting, or churn eating up new bookings. The highest ROI move is often retention improvement or narrowing ICP to improve conversion.

A team books a lot of new ARR, but churn hits hard. Net burn is $1.0M, net new ARR is $0 (because churn offsets new + expansion). Burn multiple becomes N/A. This is where a “sales-only fix” won’t work: you can’t out-sell a leaky bucket forever. Reducing churn by even a small amount can change the burn multiple dramatically because net new ARR is the denominator.

Levers that usually move the needle fastest

Burn multiple improves when you increase net new ARR faster than you increase burn, or when you reduce burn without harming revenue growth. Because it’s a ratio, you can often get big improvements from surprisingly small operational changes.

• Raise conversion rate: tighten ICP, refine messaging, improve demo-to-close, reduce friction in onboarding.
• Reduce churn: fix product gaps, strengthen customer success, improve time-to-value, add lifecycle nudges.
• Expand accounts: land-and-expand motion, add seats/usage-based upsells, package add-ons, annual prepay.
• Pricing and packaging: remove discounts, align value metrics, introduce tiers that match buyer outcomes.

• CAC discipline: cut low-quality channels, focus on intent-based outbound, optimize paid spend.
• Sales efficiency: shorten ramp, improve enablement, remove unnecessary steps, enforce qualification.
• Operating focus: pause non-core experiments, reduce tool sprawl, renegotiate vendors, hire slower.
• Comp design: align incentives with retention and expansion (not just bookings).

Frequently Asked Questions

• Is burn multiple the same as burn rate?

  No. Burn rate is how fast you spend cash (e.g., $200k/month). Burn multiple compares that burn to net new ARR created in the same period. Burn rate is about speed; burn multiple is about efficiency.

• Should I calculate burn multiple monthly, quarterly, or annually?

  Quarterly is common for board/investor reporting because it smooths noise while staying responsive. Annual/TTM is great for trend analysis. Monthly can swing wildly because bookings and churn timing are lumpy.

• What if my net new ARR is negative?

  Then burn multiple is effectively “infinite”: you’re burning cash while recurring revenue shrinks. The immediate focus is retention, product value, and fixing the leaky bucket. A sales push alone usually won’t solve it.

• What burn multiple should I target?

  Many teams aim for < 2× as a strong rule of thumb, but the right target depends on stage and strategy. Early companies investing ahead of revenue can be higher temporarily. Mature companies often need to be lower. Use it as a directional KPI: improve quarter over quarter.

• Does burn multiple account for gross margin?

  Not directly. Two companies with the same burn multiple can have very different gross margins. If your gross margin is lower (e.g., heavy services or COGS), you may need a better burn multiple to reach the same cash efficiency.

• How do I compute net burn if we raised money during the period?

  If cash increased because of financing, the simple “beginning cash − ending cash” method breaks. Use operating cash flow (or cash consumed) excluding financing proceeds, or compute burn from cash flow statements. The goal is still: cash consumed by operations (and investing, if you include it) during the period.

• Is burn multiple useful for non-SaaS businesses?

  Yes, if you have recurring revenue. Substitute “net new annualized recurring revenue” for ARR. For pure transactional businesses, other metrics (contribution margin, payback, LTV:CAC) may be better.

• Why does churn affect burn multiple so much?

  Because churn reduces net new ARR. If you lose $200k ARR to churn, it’s like you never earned that growth in the first place. Since burn multiple divides by net new ARR, the ratio can spike even if burn stays the same.

Make your result board-ready

• Use the same period for net burn and net new ARR (quarter/TTM).
• Confirm net new ARR includes churn and downsells.
• Note unusual one-time costs (reorg, big hire wave, product rebuild).
• Track the trend over multiple periods, not a single data point.

If you want a deeper view, pair burn multiple with retention (logo + dollar), CAC payback, and gross margin.