What burn multiple means and how to calculate it
Updated 2026-11-07
Burn multiple is net burn divided by net new ARR for the same period. It shows how many dollars a company burns for each dollar of annual recurring revenue it adds. David Sacks introduced it in 2020. His rules of thumb: under 1x Amazing, 1 to 1.5x Great, 1.5 to 2x Good, 2 to 3x Suspect, over 3x Bad.
The formula
Burn multiple = net burn ÷ net new ARR. Sacks writes it that way in his 2020 post, and asks how much a startup burns to generate each incremental dollar of ARR. Measure both inputs for one period, in one currency. The higher the multiple, the more the company burns for each unit of growth. The lower it is, the more efficient the growth.
How to get each input
- Net burn is the cash the company used in the period: cash going out less cash coming in (L40). With only cash balances, starting cash less ending cash gives it once money raised in the period is added back. The burn rate calculator does that sum.
- Net new ARR is the change in annual recurring revenue over the same period: ARR from new customers and expansion, less churn and downgrades (MetricHQ).
- Only have MRR? Net new ARR = (ending MRR − starting MRR) × 12.
Worked examples
| Net burn | Net new ARR | Burn multiple | What he says |
|---|---|---|---|
| $2M in a quarter | $1M | 2x | "reasonable for an early-stage startup", in his post |
| $5M in a quarter | $1M | 5x | "a terrible Burn Multiple", in his post |
| $3M in a quarter | $1M | 3 | "a burn multiple of three", in his video, read in a third-party transcript |
The calculator on the home page reads $2,000,000 on $1,000,000 as 2.00x, Good.
The bands
| Burn multiple | Band |
|---|---|
| Under 1x | Amazing |
| 1 to 1.5x | Great |
| 1.5 to 2x | Good |
| 2 to 3x | Suspect |
| Over 3x | Bad |
Sacks offers these as "rules of thumb" for venture-stage startups. His table says "Under 1x" and "Over 3x", so exactly 1x falls in Great and exactly 3x in Suspect. It does not settle exactly 1.5x or exactly 2x. This site reads exactly 1.5x as Great and exactly 2x as Good, and it rounds the multiple to two decimals before it picks the band. His text calls 2x reasonable early on.
On stage, he writes that a seed-stage company might have a burn multiple of 3 because it just started selling, and that it might drop to 2 after a Series A. After a Series B he expects efficiency to rise further and gives no number. For medians by ARR band, see benchmarks.
What would move your burn multiple
The calculator shows two figures for the next better band. The next band's upper bound is the target, T.
| Your band | Next better band | Upper bound T |
|---|---|---|
| Amazing | none, the top band | none |
| Great | Amazing | 0.99x, the highest value that rounds into Amazing |
| Good | Great | 1.5x |
| Suspect | Good | 2x |
| Bad | Suspect | 3x |
- Net new ARR that is enough at your net burn = net burn ÷ T, rounded up to the dollar.
- Net burn that is low enough at your net new ARR = net new ARR × T, rounded down to the dollar.
For $2,000,000 of net burn on $1,000,000 of net new ARR you are in Good, so T is 1.5. Net new ARR of $1,333,334 is enough to reach Great at that net burn, and so is net burn of $1,500,000 at that net new ARR. The wording is "enough to reach" because a slightly smaller change can round into the band. Amazing is the top band, so it has no next band.
Edge cases
- Net burn zero or negative. The company is not burning cash in the period, so there is no burn multiple to read. The calculator shows a message and no figure.
- Net new ARR zero. The ratio does not compute. Sacks notes that a pre-revenue startup has zero net new ARR, "so the ratio will not even compute".
- Net new ARR negative with positive net burn. ARR shrank. A negative ratio would read as efficient, so the calculator shows no multiple.
- One period at a time. Grid cautions against reading a single period in isolation and points to the trend over several (Grid).
Questions
What is a burn multiple?
It is net burn divided by net new ARR for the same period, a measure of how much a startup burns to add each dollar of annual recurring revenue. David Sacks introduced it in 2020.
How do you calculate burn multiple?
Divide net burn by net new ARR for the same period, then round to two decimals. For example, $2,000,000 of net burn and $1,000,000 of net new ARR give 2.00x. The calculator on the home page does this and names the band.
What is a good burn multiple?
On Sacks's rules of thumb, under 1x is Amazing, 1 to 1.5x Great and 1.5 to 2x Good. L40's medians fall as ARR grows, from about 3.4x under $1M to 0.4x to 0.7x at $50M and over. Benchmarks puts every source side by side with its date and sample.
Which period should I use?
One period for both inputs, in one currency. Sacks calls the ratio an easy way to judge whether burn is too high "in any given month, quarter, or year", and his examples use a quarter.
What counts as net new ARR?
The change in ARR over the period: new and expansion ARR, less churned and contracted ARR. With MRR, net new ARR = (ending MRR − starting MRR) × 12.
Can a burn multiple be negative?
In arithmetic, yes, when net burn is negative and net new ARR is positive, which means the company generated cash in the period (Grid). This calculator shows no multiple in that case, and none when net new ARR is zero or negative.