The burn multiple (developed by David Sacks at Craft Ventures) answers the question: how much cash did we burn to add each dollar of new ARR? It is calculated as Net Burn / Net New ARR. A burn multiple of 1.0x means the company burned $1 of cash for every $1 of new ARR added. Under 1.0x is exceptional; 1.0–1.5x is strong; 1.5–2.0x is acceptable for early-stage companies; above 2.0x warrants scrutiny; above 3.0x is a warning sign.
The burn multiple captures what gross margin efficiency metrics miss: a company that is growing fast but spending three dollars for every dollar of new revenue is building a business that will require perpetual external capital. Eventually, that equation doesn't close. By contrast, a company with a burn multiple under 1.0x is effectively self-funding its growth — each cohort of new revenue pays back its customer acquisition cost before the next cohort is needed.
Burn multiple is most informative for B2B SaaS and subscription businesses where ARR is the primary value driver. For transactional businesses or marketplaces, analogous metrics (like blended CAC payback period) serve a similar diagnostic function. Investors have increasingly emphasised burn multiple since the 2022 market correction as a more honest measure of capital efficiency than top-line growth rates alone.