Metrics and go-to-market
Burn multiple
Net burn divided by net new ARR. How many dollars of cash did we spend to add one dollar of recurring revenue?
Growing ARR is not enough. Two companies can both print 80% year-over-year growth while one spends $0.80 of net burn per new ARR dollar and the other spends $3. The first compounds optionality. The second is a round away from a down round. Burn multiple answers: how expensive was that growth?
David Sacks popularized it (Craft Ventures, 2020), flipping Bessemer's older Efficiency Score.
Concept
Net burn is cash out minus cash in over a period (roughly operating cash drain). Net new ARR is new + expansion − contraction − churn over the same period. See burn and runway for the cash side.
Walking through the formula
Burn multiple = Net burn / Net new ARR(Bessemer Efficiency Score ≈ Net new ARR / Net burn — the reciprocal.)
Interpretation: how many dollars of net burn did we spend to add one dollar of ARR? Lower is better.
| Burn multiple | Read |
|---|---|
| Under 1× | Excellent — growth is cheap |
| 1–1.5× | Strong |
| 1.5–2× | Acceptable early; fix by later stages |
| Over 2× | Concerning — GTM, product, or cost structure |
| Over 3× | Crisis unless hyper-growth and a clear path down |
Over a year a company adds $4M net new ARR and burns $6M net.
Burn multiple = 6 / 4 = 1.5×For each $1 of ARR added, $1.50 of cash left the building. After a cost cut that drops net burn to $4M with the same net new ARR, the multiple falls to 1.0× — same growth, far more fundable story.
Burn multiple is brutal and useful because it includes all spend — R&D, G&A, S&M — not just sales. A pretty magic number with a hideous burn multiple usually means the company is overbuilding product or overhead relative to GTM yield.
Do not game the ratio by booking low-quality ARR (heavy discounts, non-recurring "subscriptions," customers who will churn in 90 days). Diligence will unwind it; so will the next quarter's retention bridge.
Prefer trailing three-quarter averages when making hiring or fundraising claims. One quarter of prepaid enterprise deals can make any efficiency ratio look like a rocket.
Common mistakes
- Booking junk ARR to decorate the multiple. Next quarter's churn unwinds it.
- Reading it without magic number. You can look efficient on cash and sick on S&M, or the reverse.
- One heroic quarter. Use a trailing average.
Check yourself
Net burn $6M, net new ARR $4M. Burn multiple?
1.5×. $1.50 of cash left for each $1 of ARR added.
Why can magic number look great while burn multiple looks sick?
Magic number only sees S&M. Burn multiple sees R&D and G&A too. Overhead can bloat the company while sales is efficient.
Key takeaways
- Burn multiple = net burn / net new ARR. Under 1× is great; over 2× is usually a problem.
- It includes all spend, so it is the company-wide efficiency lens.
- Do not game it with low-quality ARR.
- Use trailing averages. Pair it with magic number and retention.
Further learning
The Burn Multiple (Craft Ventures / David Sacks)As the economic crisis deepens, capital efficiency becomes a more pressing issue for startups.craftventures.com
Next, magic number.