How to calculate burn multiple
Burn multiple measures how much cash you burn to generate each dollar of new recurring revenue. It is a blunt, honest efficiency metric that cuts through vanity growth: a company adding ARR while burning huge cash has a worse business than its growth rate suggests.
Short answer
Calculate burn multiple by dividing net cash burned in a period by the net new ARR added in that period. For example, burning 2 million dollars to add 1 million dollars of net new ARR is a burn multiple of 2. Lower is better: under 1 is excellent, and above 3 signals inefficient, cash-hungry growth.
Step by step
Measure net cash burn
Take the net cash the business consumed in the period, from your cash flow statement, over a consistent window.
Measure net new ARR
Take the increase in ARR over the same period: new plus expansion minus churn and contraction.
- Burn multiple = net cash burned / net new ARR
- Lower is better
- Under 1 excellent, 1-2 good, above 3 poor
Divide and interpret
Divide burn by net new ARR. Under 1 is elite efficiency; 1 to 2 is healthy; above 3 means growth is expensive.
Compare to stage and market
Early companies burn more per dollar of ARR; judge the multiple against your stage and funding environment.
Track the trend
Watch whether efficiency improves as you scale. A rising burn multiple as you grow is a warning sign.
How Ardovo helps
Ardovo ties ARR movement to one source of truth, so net new ARR is exact, and Rook can pair it with your cash data to report burn multiple and its trend, giving investors and operators an honest efficiency read.
Frequently asked questions
What is a good burn multiple?
Under 1 is considered elite, 1 to 2 is healthy, and above 3 signals inefficient growth that consumes a lot of cash per dollar of new ARR. Judge it against your stage, since early companies naturally run higher multiples.
How is burn multiple different from the magic number?
Both measure growth efficiency, but burn multiple uses total net cash burn against net new ARR, while the magic number uses only sales and marketing spend against net new ARR. Burn multiple captures whole-company efficiency, including R&D and overhead.
Why do investors like the burn multiple?
Because it is hard to game and captures the full cost of growth in one number. High growth funded by enormous burn looks worse under this lens, which is exactly why it has become a favored efficiency benchmark in tighter funding markets.