What is a good burn multiple?
Burn multiple benchmarks are refreshingly simple: lower is better, and the tiers are widely cited. Because it uses total company burn, the burn multiple is a harsh, complete test of growth efficiency.
Stage matters. Very early companies often run higher burn multiples while building, and that can be acceptable; the metric becomes more demanding as a company scales and should improve over time.
Short answer
A good burn multiple is under 1, meaning you burn less than a dollar to add a dollar of net new ARR. David Sacks framed the tiers as under 1 amazing, 1 to 2 good, 2 to 3 suspect, and above 3 bad. Lower is always better because it means growth costs less cash. Early-stage companies get more leeway.
Key takeaways
- Under 1 is amazing; 1 to 2 is good.
- 2 to 3 is suspect; above 3 is bad.
- Lower means growth costs less cash.
- Early stage gets more leeway; it should improve with scale.
Interpreting the tiers
A burn multiple under 1 means each dollar of net new ARR cost less than a dollar of burn, exceptional efficiency. Between 1 and 2 is healthy. Above 3, you are burning more than three dollars for every dollar of new ARR, which is hard to sustain and hard to fund.
Because it captures total burn, the burn multiple is harsher than the magic number, which covers only sales and marketing. A company can have a decent magic number but a poor burn multiple if other functions are inefficient.
How Ardovo handles it
Ardovo pairs ARR movement with finance burn to compute the burn multiple each period against these tiers. Rook flags when it deteriorates and whether the cause is slowing net new ARR or rising burn, so you address the right side.
Frequently asked questions
What is a good burn multiple?
Under 1 is amazing, 1 to 2 is good, 2 to 3 is suspect, and above 3 is bad. Lower is always better because it means you burn less cash per dollar of net new ARR. Early-stage companies get more leeway.
Why is the burn multiple a harsh metric?
Because it uses total company burn, not just sales and marketing, so it catches inefficiency everywhere. A company can look fine on the magic number but poor on the burn multiple if other functions consume too much cash.
Does the burn multiple change by stage?
Yes. Very early companies often run higher burn multiples while building foundational capabilities, which can be acceptable. The metric becomes more demanding as the company scales, and a healthy trajectory shows it improving over time.