Of all the efficiency metrics that have gained ground since the market turned, the burn multiple is the one investors reach for most. It answers a single blunt question: how much cash are you burning to generate each new dollar of recurring revenue? The lower the number, the more efficiently you’re turning capital into growth.

What is the burn multiple and how do you calculate it?

The burn multiple was popularised by investor David Sacks, and the formula is deliberately simple:

Burn multiple = net burn / net new ARR

If you burned $2 million in cash over a period and added $1 million of net new ARR, your burn multiple is 2x. You spent two dollars for every new dollar of recurring revenue. If you’d added $2 million of net new ARR on that same $2 million of burn, your multiple would be 1x – considerably more efficient.

The reason investors like it is that it captures almost everything in one figure. A poor gross margin, weak retention, bloated costs, inefficient sales – all of them push your burn multiple up. It’s a single number that reflects the health of the whole growth engine.

What is a good burn multiple?

Sacks’ original framework gives a rough scale:

• Under 1x: amazing
• 1x to 1.5x: great
• 1.5x to 2x: good
• 2x to 3x: suspect
• Over 3x: bad

These aren’t hard cut-offs, and earlier-stage companies are usually cut more slack than scaling ones. But as a directional read, a burn multiple drifting above 2x is a signal that your growth is getting expensive – and in the current market, that’s exactly what investors are watching for.

The trap: it assumes the next round is coming

Here’s the important caveat. A strong burn multiple tells you your growth is efficient, but it says nothing about how much cash you have left. You can run a tidy 1x burn multiple and still hit the wall if your runway runs out before your next raise. Efficiency and survival are two different things – a great burn multiple built on the assumption that more capital is always available can lull you into a false sense of security.

So read your burn multiple alongside your runway and operational milestones, not instead of them. Efficient burn buys you credibility with investors; it doesn’t buy you time on its own.

How to forecast your burn multiple

To forecast it well, you need clean projections of both halves of the ratio:

• Net burn – forecast conservatively from your committed cost base, netting off only revenue you’re confident of collecting. Getting the gross versus net burn split right matters here.
• Net new ARR – the change in your recurring revenue over the period, net of churn and contraction. This is where over-optimism creeps in: founders forecast gross new ARR and forget to subtract what they’ll lose.

Model both forward and you’ll see your burn multiple trend, which is far more telling than any single quarter. A multiple that’s improving as you scale is one of the strongest efficiency signals you can put in front of an investor.

The Australian angle

Australian investors have leaned hard into efficiency metrics over the past couple of years, and the burn multiple travels well because it needs no local translation – a dollar of ARR per dollar of burn means the same thing in Sydney as in San Francisco. If you’re raising locally, showing an improving burn multiple demonstrates you’re building a capital-efficient business rather than simply buying growth – which is precisely the story the current market rewards.

Disclaimer: This article is for general informational purposes only and does not constitute financial, legal or tax advice. Please speak with a qualified adviser (hey, that’s us!) before making decisions based on your specific circumstances.