Burn Multiple: How to Calculate It, What's Good and Benchmarks by Stage

The burn multiple is net burn divided by net new annual recurring revenue (ARR) over the same period. It tells you how many dollars of cash a startup burns to add each dollar of ARR. A burn multiple of 2x means the company burned $2 to add $1 of ARR.

Lower is better. David Sacks, who popularized the metric, calls anything under 1x amazing and anything over 3x bad. Investors use it because it answers a question growth alone doesn't: what did that growth cost?

Most startups should aim for:

• under 3x at seed, while the product is still finding its market
• about 2x or better after a Series A
• under 1.5x by Series B, moving toward zero as the company approaches break-even

What is the burn multiple?

The formula is:

Burn multiple = net burn ÷ net new ARR

• Net burn is the cash the company loses in the period: cash coming in from customers minus cash going out on operations. If the company collected $1.1 million and spent $2.5 million in a quarter, net burn is $1.4 million.
• Net new ARR is the change in ARR over the same period: new ARR plus expansion ARR, minus churned and contracted ARR.

Sacks introduced the metric in April 2020, as a way to judge whether a startup's growth was efficient or simply expensive. It's the inverse of Bessemer Venture Partners' efficiency score (net new ARR ÷ net burn), turned around so it reads like a multiple. A score of 0.5 under Bessemer's version is a burn multiple of 2x.

The metric is built for companies with recurring revenue. If a company has no revenue yet, net new ARR is zero and the ratio doesn't compute.

How to calculate the burn multiple

1. Pick the period. Use a quarter or the trailing 12 months, and use the same period for both numbers. Because both sides cover the same months, you don't need to annualize anything. A single quarter is noisy, so many investors look at the trailing 12 months alongside it.
2. Calculate net burn from the cash flow statement. Take operating cash outflows minus cash collected from customers. Leave out money raised from investors or lenders: equity and debt fund the burn, they don't reduce it.
3. Calculate net new ARR from your ARR bridge. Start with ARR at the beginning of the period and add new and expansion ARR. Then subtract churned and contracted ARR. The result must equal ARR at the end of the period minus ARR at the start. If it doesn't, the ARR bridge has a gap.
4. Divide. Net burn ÷ net new ARR.
5. Track the trend, not just the number. A burn multiple that rises as the company grows is a warning sign, even if headline growth looks strong.

If your 3-statement model already produces a cash flow statement and an ARR bridge, the burn multiple is one extra line in the monthly board pack.

What is a good burn multiple?

These are the five bands Sacks published, as they're widely reproduced:

Stage matters. Sacks writes that a seed company "might have a Burn Multiple of 3 because it just started selling", and that the multiple should fall to about 2x after a Series A. After that it should keep falling toward zero, because a company can only become profitable when its burn reaches zero.

Burn multiple benchmarks by stage

Published benchmarks vary a lot with the sample and the year, so treat them as ranges, not targets.

CFO Advisors published these stage benchmarks in March 2026:

An earlier Capchase dataset of 439 SaaS companies, from 2022, put the medians lower:

• 1.7x at $1–3 million of ARR
• 1.0x at $3–5 million
• 0.65x at $5–10 million
• 0.85x at $10–15 million

The gap between the two sets is a reminder that a burn multiple is only comparable when it's calculated the same way. The next two sections show how much the method can change the answer.

Worked example: a $3 million ARR Series A company

Take the company from our guide on when to hire a CFO:

• $3 million of ARR at the start of the year
• $12 million in the bank after its Series A
• net burn of $450,000 a month, or $5.4 million over the year

Over the next 12 months it adds $3.3 million of new ARR and $0.4 million of expansion, and loses $0.7 million to churn. Net new ARR is $3.0 million, and ARR doubles to $6 million.

Burn multiple: $5.4 million ÷ $3.0 million = 1.8x. That's "good" on Sacks' scale and at the top of the 2026 Series A median range.

Now look at what happens when the same company calculates it differently:

Gross burn here assumes $4.5 million of cash collected from customers during the year, the average of the opening and closing ARR. The quarterly figures assume net new ARR of $0.40 million, $0.65 million, $0.75 million and $1.20 million in the four quarters, which add up to the $3.0 million for the year.

One company, one year, and answers from "great" to "bad". That's why investors ask how you calculated it.

What the burn multiple says about the next raise. The company ends the year with $6.6 million of cash and $6 million of ARR. Suppose it wants to reach $10 million of ARR before raising its Series B. That's another $4 million of net new ARR:

• At a 1.8x burn multiple, getting there burns about $7.2 million, which is $0.6 million more than the cash left.
• At 1.4x, it burns about $5.6 million and leaves $1 million of headroom.

This is a simplification, since the multiple rarely stays constant. But "burn multiple × the ARR you need to add" is a quick test of whether the plan fits the cash. For week-by-week cash, use a 13-week cash flow forecast.

Five mistakes that distort the burn multiple

1. Ignoring churn. Using new ARR without netting off churn and contraction flatters the multiple. In the example, it turns 1.8x into 1.5x.
2. Using gross burn. Gross burn is total spending. The metric uses net burn, after cash from customers. Using gross burn makes almost every company look bad.
3. Judging a single quarter. Sales are lumpy, and one quarter can swing from 1.1x to 3.4x. Report the quarter, but look at the trailing 12 months too.
4. Counting bookings or one-off revenue as ARR. Signed contracts that haven't started, implementation fees and services revenue aren't recurring. Including them inflates the denominator.
5. Mixing periods. Net burn for a quarter divided by net new ARR for a year gives a meaningless number. Both sides need the same months.

How to improve your burn multiple

The burn multiple has two levers: spend less for the same growth, or get more net new ARR for the same spend. Starting from the example company's 1.8x:

In practice, the biggest improvements usually come from:

• Retention. Every dollar of ARR you keep is a dollar you don't have to replace before net new ARR counts.
• Expansion. Upsells and price increases to existing customers add ARR at a much lower cost than new logos.
• Spending that doesn't produce ARR. Hiring ahead of plan and tools nobody uses add to net burn without adding growth. Check them against the annual operating plan.
• Unit economics. If some customers or products lose money after variable costs, growth there makes the multiple worse. Contribution margin shows where.
• Collections. Annual upfront billing brings cash in earlier and lowers net burn in the period, without changing ARR.

Burn multiple vs other efficiency metrics

The burn multiple is useful because it covers the whole company, not just sales and marketing. It also reflects the most recent period, so cutting costs shows up quickly. The hype ratio, by contrast, counts all capital ever raised, so past waste stays in it permanently.