SaaS Burn Multiple Calculator (David Sacks / Craft Ventures)
The Burn Multiple measures capital efficiency: how much cash does a startup burn to generate every $1.00 of Net New ARR?
Inputs
Cash burned over the quarter or year (Cash In minus Cash Out).
Net new ARR added in the same period (New ARR + Expansion - Churn).
Good (1.0–1.5x). Healthy venture capital efficiency band.
What Is Burn Multiple?
Burn multiple measures capital efficiency: how much cash a SaaS company burns to generate each dollar of new recurring revenue. A burn multiple calculator divides net cash burn by net new ARR — a multiple of 2 means the company spent $2 to create $1 of new ARR. The metric was popularized by David Sacks of Craft Ventures as a corrective to the growth-at-all-costs era, and it has become the standard efficiency screen for startups between product-market fit and profitability. Where the magic number looks only at sales and marketing spend, burn multiple looks at the whole company — every dollar out the door versus every dollar of new ARR in.
That breadth is both its strength and its limitation. Burn multiple captures R&D, G&A, and the full opex base, so it reflects true corporate efficiency rather than just go-to-market efficiency. But it breaks down at the extremes: it is meaningless for profitable companies (negative burn produces a negative multiple) and misleading for pre-revenue or hyper-early companies where ARR is near zero. It is also a snapshot, not a trend — a single quarter's multiple can be distorted by hiring waves or annual prepay collections. In 2026, the best operators track burn multiple on a trailing-twelve-month basis and pair it with the Rule of 40, which balances the same efficiency instinct against growth.
Burn Multiple Formula
Variable definitions:
- Net Cash Burn — Total cash outflows minus total cash inflows for the period (usually a quarter or year). Use *cash* burn, not accounting net loss — non-cash items like stock-based compensation and amortization distort the picture. If the company is cash-flow positive, the multiple is negative and the metric doesn't apply.
- Net New ARR — New-logo ARR plus expansion ARR, minus churned and contracted ARR, for the same period. Same-period matching matters: dividing Q1 burn by full-year ARR flatters the result.
Interpretation: a burn multiple of 1.5 means $1.50 of net cash burned per $1.00 of net new ARR created. Lower is better. The Craft Ventures framework:
- < 1x — Excellent. The company is nearly self-funding its growth.
- 1–2x — Good. Normal for a well-run scaling SaaS company.
- 2–3x — Acceptable in high-growth phases, but should be improving.
- > 3x — Poor. The company is incinerating capital to grow and needs a plan.
Worked Example
A Series A SaaS company reports for Q1 2026:
- Starting cash (Jan 1): $12,000,000
- Ending cash (Mar 31): $10,200,000
- Net cash burn = $12,000,000 − $10,200,000 = $1,800,000
- New logo ARR: $500,000; expansion ARR: $200,000; churned/contracted ARR: $100,000
- Net new ARR = $500,000 + $200,000 − $100,000 = $600,000
Burn Multiple = $1,800,000 ÷ $600,000 = 3.0x
That sits right on the edge of poor — the company burns $3 for every $1 of new ARR. Runway is $10.2M ÷ $1.8M per quarter ≈ 5.7 quarters, roughly 17 months. The diagnosis writes itself: either growth must accelerate without proportional spend, or burn must come down. If the same company cut burn to $900K/quarter while holding ARR growth, the multiple drops to 1.5x — good — and runway extends to about 11 quarters.
Contrast with a disciplined peer: $400K quarterly burn producing $500K net new ARR → 0.8x, excellent, with years of runway. Same ARR growth, radically different capital story — which is exactly what the metric is designed to expose.
Benchmarks
| Burn Multiple | Rating | What it signals |
|---|---|---|
| < 1x | Excellent | Growth nearly self-funded; maximum strategic optionality |
| 1–2x | Good | Healthy scaling efficiency; the 2026 investor sweet spot |
| 2–3x | Tolerable | Justifiable only with very high growth or a clear path down |
| > 3x | Poor | Capital destruction; fix before raising again |
Context that changes the reading:
- Stage matters. Seed companies pre-scale will show ugly multiples — the metric applies from Series A onward, once there is real ARR to measure against.
- Growth rate matters. A 3x multiple at 200% YoY growth is a different conversation than 3x at 30% growth. Pair burn multiple with growth rate (this is what the Rule of 40 does formally).
- One-time effects distort. Annual prepay collections depress cash burn in the collection quarter; big hiring waves inflate it. Use trailing-twelve-month figures for board-level reporting.
- Profitable companies should ignore the metric entirely — negative burn makes it meaningless.
Frequently Asked Questions
What is a good burn multiple for SaaS?
Under 2x is good, under 1x is excellent. The Craft Ventures framework that popularized the metric sets 1–2x as the healthy band for scaling SaaS companies, 2–3x as tolerable during aggressive growth, and above 3x as a red flag. In 2026's efficiency-focused funding market, sub-2x is increasingly table stakes for raising a growth round.
How do you calculate burn multiple?
Burn Multiple = net cash burn ÷ net new ARR, for the same period. Net cash burn is the decrease in cash balance (use actual cash flow, not accounting net income). Net new ARR is new-logo plus expansion ARR minus churned and contracted ARR. Both inputs must cover the same quarter or year, or the ratio is meaningless.
What is the difference between burn multiple and magic number?
Burn multiple divides *total* net cash burn by net new ARR — it measures whole-company capital efficiency. Magic number divides only *S&M spend* by annualized net new ARR — it measures go-to-market efficiency. A company can have a good magic number and a terrible burn multiple if R&D and G&A are bloated. Use magic number to diagnose sales, burn multiple to diagnose the company.
Can burn multiple be negative?
Arithmetically yes, when a company is cash-flow positive — but the metric is meaningless in that case. A negative burn multiple doesn't mean "infinitely efficient"; it means the company has outgrown the metric. Profitable or breakeven companies should track the Rule of 40 or free cash flow margin instead.
Why is my burn multiple so high?
The usual causes: S&M spend that isn't converting (check the magic number to isolate this), R&D headcount growing faster than revenue, G&A bloat, or simply too little ARR growth for the cost base. Decompose the numerator — if S&M is the driver, it's a go-to-market problem; if it's R&D/G&A, it's an operating discipline problem. The fix depends entirely on which.
How does burn multiple relate to runway?
Directly: runway = cash on hand ÷ net burn per period, and burn multiple tells you whether that burn is *productive*. Eighteen months of runway at a 4x multiple means 18 months of capital destruction — the company will struggle to raise. The same runway at 1.2x is a position of strength. Report them together; neither means much alone.