Burn Multiple Calculator: Formula, Benchmarks, and Your ARR

What is the burn multiple?

The burn multiple is net burn divided by net new ARR over the same period, so it tells you how many dollars of cash the company consumed to add each dollar of annual recurring revenue. A burn multiple of 2x means $2 burned for every $1 of ARR added, and the lower the multiple, the more efficiently the company is growing.

David Sacks of Craft Ventures introduced it in April 2020 as one number that says whether growth is being bought at a reasonable price. Its strength is that it only moves when growth gets cheaper or more expensive: burning less while growing proportionally less leaves it where it was.

It is not the same as burn rate. Burn rate says how fast cash leaves and nothing about what the cash bought. Two companies each burning $200,000 a month look identical on burn rate. If one adds $2.4M of ARR over the year and the other $800,000, their burn multiples are 1x and 3x, and only one of them is a business an investor wants to fund.

How to calculate the burn multiple

Burn multiple equals net burn divided by net new ARR, where both are measured over the same period: net burn is the cash used by operations plus capital expenditure, and net new ARR is closing ARR minus opening ARR.

The definitions used throughout this page, stated once:

Burn multiple = Net burn ÷ Net new ARR

Net burn = cash used by operations plus capital expenditure over the period, capitalised software included, as a positive number. Purchases and sales of investments such as treasury bills, equity raised, debt drawn and debt repaid are left out. If operations brought in more cash than capital expenditure used, net burn is negative.

Net new ARR = closing ARR minus opening ARR, which is new ARR plus expansion ARR minus contraction ARR minus churned ARR.

Financing and investment purchases are left out because they say nothing about efficiency. A quarter in which you close a round shows cash going up, and a month in which you park $4M in treasury bills shows it going down: in both, the burn is still the burn.

This net burn is a historical cash figure. It is not the forward monthly net burn used to calculate cash runway, which starts from operating expenses and gross profit because it looks ahead rather than back.

Measure both terms over the trailing twelve months, and recompute every quarter. That is our practice, not a standard. The reason is cash timing. Annual contracts collected up front put a year of cash into the month of collection, so a quarter heavy with renewals shows a low net burn and a light one a high net burn, with nothing changed in the business. Twelve months hold a full renewal cycle. If more customers switched to paying a year up front during those months, even twelve months of cash will make the business look better than it is.

A simple case: a company burned $2,200,000 over the last twelve months while its ARR went from $2,000,000 to $3,000,000. Net new ARR is $1,000,000, and the burn multiple is $2,200,000 ÷ $1,000,000, or 2.2x.

Burn multiple calculator: the ARR you report against the ARR billing supports

Enter twelve months of net burn and your ARR at the start and the end of that period to get your burn multiple and its band on David Sacks’s grading; add the ARR your billing system supports at both dates, and the calculator shows whether the multiple you report flatters you, penalises you, or holds.

It opens on case 2 of the examples further down this page: $2,200,000 of net burn, reported ARR from $2,000,000 to $3,255,000, and ARR rebuilt from billing from $2,000,000 to $3,000,000. The multiple reported is 1.75x, the one billing supports 2.20x, and the difference is the $255,000 by which the ARR gap grew.

What is a good burn multiple?

By David Sacks’s 2020 grading, a burn multiple under 1x is amazing, 1x to 1.5x great, 1.5x to 2x good, 2x to 3x suspect and over 3x bad. These are investor rules of thumb, not measurements.

CRV used the same boundaries for Series A companies in July 2026, calling 1.5x to 2x acceptable at that stage, but measured burn as operating expenses minus revenue, an accounting measure rather than cash.

Sacks presented his table as “reasonably good rules of thumb” for venture-stage startups, and expected the multiple to fall as a company matures: a seed-stage company that has only just started selling can sit near 3x, and in his words, “After the Series A, it might drop to 2.” The grading therefore reads differently at $1M of ARR than at $20M, which is what the measured benchmarks below show.

Burn multiple benchmarks by stage

In a16z’s 2022 analysis of private software companies, the median burn multiple was 1.6x under $10M of ARR, 1.4x from $10M to $25M, 0.7x from $25M to $75M and 0.5x above $75M, and in Lighter Capital’s 2026 benchmark of private B2B SaaS companies between about $250,000 and $22M of ARR, half of those burning cash burned more than $1 for each $1 of new ARR. Compare yourself to a band and to how the figure was measured, not to a single number.

For a company between $1M and $7M of ARR, the closest measured reference is a16z’s 1.6x median under $10M, from 2022, in Sacks’s good band, and Lighter Capital’s 2026 data puts half of cash-burning companies between about $250,000 and $22M of ARR above 1x. Neither says what yours should be, but a multiple well above 2x at that size puts you in the weaker half of the a16z sample.

Why your burn multiple is only as good as your net new ARR

Net burn comes from a bank statement and net new ARR usually comes from a spreadsheet, and in all 24 of our engagements the ARR in that spreadsheet ran above what billing supported.

Across 24 Offset Partners engagements with SaaS and AI companies between September 2025 and August 2026, the ARR reported to the board was higher than the ARR the billing system supported in all 24, by 2 to 22 percent, median 8.5 percent. How that gap was measured, and how to rebuild reconcilable ARR, is on our ARR vs MRR page.

The burn multiple does not divide by ARR, though. It divides by the change in ARR, so what distorts it is not the gap but the change in the gap:

Error in net new ARR = gap at the end of the period minus gap at the start, in dollars.

That has three consequences. A gap that was already there a year ago mostly cancels out: it grows with the business, so it flatters net new ARR by roughly its own percentage. A gap that appeared during the year lands in net new ARR in full. And a gap corrected during the year, if the opening figure is not restated on the same definition, lands in net new ARR too, in the other direction. The same reported ARR can therefore flatter your burn multiple, leave it almost intact, or punish it.

How an ARR gap changes your burn multiple: three examples

The same company with a true burn multiple of 2.20x reports 2.03x, 1.75x or 2.65x depending on whether its ARR gap sat at both ends of the year, appeared during it, or was corrected without restating the opening figure.

The company burned $2,200,000 over twelve months while reconcilable ARR grew from $2,000,000 to $3,000,000. Its gap is 8.5 percent, the median gap across 24 Offset Partners engagements with SaaS and AI companies, measured on our ARR vs MRR page.

Case 1, a gap at both ends. The company reported $170,000 too much a year ago and $255,000 too much today. The dollar gap grew by $85,000, so reported net new ARR is $1,085,000 and the burn multiple 2.03x, against 2.20x. Wrong, but in the same band as the true figure.

Case 2, a gap that appeared during the year. A year ago the reported figure matched billing. Today it is $255,000 higher, perhaps because a signed contract that has not started, or one strong month of usage, entered the ARR line. All of it lands in net new ARR, which is overstated by 25.5 percent, and the burn multiple reads 1.75x instead of 2.20x. That moves the company across a band boundary an investor will notice, from Sacks’s suspect to his good, on a number that did not change.

Case 3, a gap corrected during the year. During the year, the founder found that the ARR definition inflated the figure and fixed it going forward, then compared today’s clean $3,000,000 with last year’s $2,170,000, still on the old definition. Net new ARR reads $830,000 and the burn multiple 2.65x: still suspect, and further from good than the true 2.20x. The correction was the right thing to do, and the founder who made it is the one penalised.

The fix for case 3 is our standing practice: when you change the definition of ARR, restate the opening figure, and every month of the ARR bridge in between, on the new definition. Restated, case 3 reports the true 2.20x.

How to check your burn multiple before a board meeting or a raise

Checking a burn multiple takes four steps: rebuild reconcilable ARR at the start and the end of the period from the billing system, take net burn for the same twelve months from the cash flow statement, recompute the multiple, and compare the gap in dollars at the two dates.

1. Rebuild closing ARR from the billing system, as the ARR vs MRR page explains.
2. Rebuild opening ARR the same way, for the month twelve months earlier and with the same definition. Billing systems keep each subscription’s start and end dates, so the opening figure can usually be rebuilt even if nobody measured it at the time.
3. Take net burn from the cash flow statement for the same twelve months: cash used by operations plus capital expenditure, with investment purchases and all financing left out. A cash flow statement prints cash used by operations as a negative number: enter it in the calculator as a positive one. If your books do not produce a cash flow statement that separates these lines, that is the first thing to fix.
4. Recompute the multiple and compare the gaps. Put the reported ARR next to the rebuilt ARR at both dates, and name the difference at each. The calculator on this page does this step once you have the figures from the first three.

The check that tells you whether you have the problem. If the net new ARR you report is higher than net new ARR rebuilt from billing, your reported burn multiple flatters you; if it is lower, it penalises you; the difference between the two is the change in your ARR gap between the two dates. This checks the denominator only.

Rebuilding ARR at two dates and producing a cash flow statement that separates operating, investment and financing lines is close work rather than analysis, and it is part of our controller services.

When the burn multiple stops working: negative net new ARR, profitability and usage revenue

The burn multiple has no meaning when net new ARR is zero or negative, and it turns negative in a good way when the company generates cash: in the first case we write n/m, not meaningful, and show net burn and the ARR bridge instead, and in the second the ratio has done its job.

Negative net new ARR. If ARR shrank over the period, dividing a burn by a loss gives a negative number that looks better than amazing. It is not. Reporting n/m, next to the net burn and the bridge from opening to closing ARR through new, expansion, contraction and churn, is our practice, and it tells a board more than any ratio would.

Cash generation. When net burn is negative, the multiple is below zero. a16z describes that crossing as the objective for a company becoming cash flow positive, and at that point free cash flow and growth describe the business better than the ratio does. A pre-revenue company has no net new ARR at all, so the ratio does not apply yet.

Usage revenue. Usage above committed minimums stays outside ARR and is shown on its own line as a usage run-rate, as the ARR vs MRR page explains. An AI company growing mainly through usage will therefore show a higher burn multiple on clean ARR than a subscription business with the same cash efficiency. Present the multiple on ARR, with the usage run-rate beside it, rather than folding usage into the denominator to bring the ratio down: an investor will unfold it. How we handle this for AI companies starts from the same separation.

How to lower your burn multiple, and the metrics to read beside it

A burn multiple falls when the same cash buys more net new ARR, so the fastest levers are the ones that raise net new ARR without new spend: keeping and expanding existing customers, because churn and contraction come straight off the denominator, and pricing, because a price increase adds ARR at almost no cost. After those comes cutting spend that produces no ARR.

Before pulling any lever, make sure the number is measured on reconcilable ARR at both ends of the period and on twelve months of cash. A multiple that improves because the ARR gap grew has not improved.

Three metrics are often read beside it, and each answers a narrower question. CAC payback measures how many months of gross profit it takes to recover the cost of acquiring a customer, so it isolates acquisition. The magic number compares net new ARR in a period with the sales and marketing spend of the period before, so it isolates go-to-market. The Rule of 40 adds the revenue growth rate and the profit margin and asks whether the sum reaches 40 percent, so it weighs growth against profitability for companies past the early stage. The burn multiple is the only one of the four that counts every dollar of cash the company burns.

What investors do with your burn multiple in diligence

In diligence, an investor recomputes net burn from bank statements and net new ARR from contracts and the billing export, so a burn multiple you recomputed yourself and that holds becomes a line in your deck, while one the investor recomputes higher becomes a question about every other number. That is our judgment from client work rather than a measured result.

The two terms are checked with different levels of difficulty. Net burn is easy to verify, because the bank statements are the bank statements. Net new ARR is where the work goes, because it needs ARR at two dates and nobody kept the opening figure. A founder who arrives with both dates rebuilt, the gap named at each and the definition written down has answered the question before it is asked.

A burn multiple that moves from 1.75x to 2.20x after the term sheet is repriced from a position of doubt. The same 2.20x presented first, with the bridge that explains it, is a number you control. Defining the metrics a board sees, and keeping them stable from one meeting to the next, is fractional CFO work.

How Offset Partners calculates your burn multiple

We work only with SaaS and AI companies, and every quarter we compute the burn multiple over a trailing twelve months, on ARR rebuilt from your billing system at both ends and on net burn from your cash flow statement.

It is part of the monthly close we run, with the same definitions from one board meeting to the next.

The diagnostic starts by putting the burn multiple in your last board deck next to the one your billing system and your bank support. If they match, we will tell you that, and there is nothing here for us to sell you.

Sources

External sources on this page, with the date each was published.

• Burn multiple formula and grading table, under 1x amazing to over 3x bad: The Burn Multiple, David Sacks, Craft Ventures, published 23 April 2020. A rule of thumb, not a measurement.
• Series A grading, under 1.0x exceptional to above 3.0x problematic: How Series A investors evaluate burn rate, CRV, published 17 July 2026. A rule of thumb, not a measurement, with net burn measured as operating expenses minus revenue, an accounting measure rather than cash.
• Burn multiple percentiles by ARR band, and the definition “cash burned divided by net ARR added”: A Framework for Navigating Down Markets, Justin Kahl and David George, a16z, published 13 May 2022, updated 1 September 2023. Population: private software companies analysed by a16z, number not published.
• Average burn multiple by ARR band, with operating loss as the measure of burn: Benchmarking SaaS Growth and Burn, Edi Danalache, Scale Venture Partners, published 11 July 2022. Population: several hundred private and public SaaS companies. Scale uses operating loss as its measure of burn and says it usually sits within 10 percent of cash burn.
• Share of cash-burning companies above 1.0x: Cash Efficiency Benchmarks for Private B2B SaaS Startups, Stephanie Pflaum, Lighter Capital, published 5 June 2026, updated 6 July 2026. Population: 83 private B2B SaaS companies with about $250,000 to $22M of ARR, 2024 and 2025 data; the share covers the 55 that were burning cash.
• The trailing twelve-month window, the restatement of opening ARR when its definition changes, and n/m for zero or negative net new ARR are Offset Partners’ own practice, not a standard. The three examples are illustrative.

The ARR gap, higher than reconcilable ARR in 24 of 24 engagements, by 2 to 22 percent, median 8.5 percent, is Offset Partners’ own data, 24 engagements with SaaS and AI companies between September 2025 and August 2026. Definition and method: ARR vs MRR.

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