The burn multiple
Net burn over net new ARR on Northwind Care's plan quarter, with the formula's author cited and its undefined case handled.
If the plan burns $45,000 net in a quarter while ARR goes from $54,000 to $108,000, the burn multiple is 0.83×: dollars burned for each dollar of net new ARR. Lower is better. The formula comes from an investor's post, not a standard. Thresholds you'll hear quoted are opinions, so cite whoever said them.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Background reading — not an authority
- David Sacks, “The Burn Multiple” (April 23, 2020) (opens in a new tab)The origin of the burn multiple — an investor's heuristic, not a standardFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Burn multipleBurn multiple is a cash and runway metric, calculated as Net burn ÷ Net new ARR, over the same period.Convention
- Net burnNet burn is a cash and runway metric, calculated as Gross burn − cash in, excluding financing inflows.
- ARRARR is a recurring-revenue metric, calculated as MRR × 12.Convention
See also
- Rule of 40 calculatorRule of 40 is a profitability metric, calculated as Revenue growth % + EBITDA margin %.
- Magic number calculatorMagic number is a unit-economics metric, calculated as Net new ARR in the quarter ÷ prior-quarter S&M (equivalently (Δ quarterly revenue × 4) ÷ prior-quarter S&M).
- Burn multipleNet burn divided by net new ARR over the same period. It says how many dollars you burned to add a dollar of recurring revenue. Lower is better. It's a metric, not a GAAP figure.