Burn Multiple
Industry:
SaaS
Efficiency
Profitability
Liquidity
Aliases:
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Short Definition
Burn Multiple measures how much net cash a company burns to generate each $1 of Net New ARR in a period. Lower is better (more efficient).
Short Definition
Burn Multiple measures how much net cash a company burns to generate each $1 of Net New ARR in a period. Lower is better (more efficient).
Short Definition
Burn Multiple measures how much net cash a company burns to generate each $1 of Net New ARR in a period. Lower is better (more efficient).
Why it matters for Investors
Capital efficiency: Shows how quickly burn turns into durable, recurring revenue.
Quality of growth: Rewards growth with discipline (vs. “buying” ARR).
Comparability: Normalizes stage, mix, and seasonality better than headline burn or ARR alone.
Why it matters for Investors
Capital efficiency: Shows how quickly burn turns into durable, recurring revenue.
Quality of growth: Rewards growth with discipline (vs. “buying” ARR).
Comparability: Normalizes stage, mix, and seasonality better than headline burn or ARR alone.
Why it matters for Investors
Capital efficiency: Shows how quickly burn turns into durable, recurring revenue.
Quality of growth: Rewards growth with discipline (vs. “buying” ARR).
Comparability: Normalizes stage, mix, and seasonality better than headline burn or ARR alone.
Formula
Practical considerations -
Cash basis: Use Operating Cash Flow (OCF) + Investing, exclude Financing (debt/equity).
Same period: Numerator and denominator must be the same quarter/month.
Denominator discipline: Use live, in-period Net New ARR (exclude signed-not-live, acquired ARR, currency translation).
De-noise: If working-capital swings are spiky, use OCF before working-capital changes (add back Δ Accounts Receivable/ ΔAccounts Payable /Δ Inventory) or a rolling TTM average.
Sign convention: Report Net Cash Burn as a positive number when outflows > inflows. If OCF+Investing ≥ 0, you’re cash-flow neutral/positive → Burn Multiple = Not Meaningful.
Non-ARR models: Optionally show Cash Burn per Net New Gross Profit = Net Cash Burn ÷ Net New Gross Profit (label it clearly).
Formula
Practical considerations -
Cash basis: Use Operating Cash Flow (OCF) + Investing, exclude Financing (debt/equity).
Same period: Numerator and denominator must be the same quarter/month.
Denominator discipline: Use live, in-period Net New ARR (exclude signed-not-live, acquired ARR, currency translation).
De-noise: If working-capital swings are spiky, use OCF before working-capital changes (add back Δ Accounts Receivable/ ΔAccounts Payable /Δ Inventory) or a rolling TTM average.
Sign convention: Report Net Cash Burn as a positive number when outflows > inflows. If OCF+Investing ≥ 0, you’re cash-flow neutral/positive → Burn Multiple = Not Meaningful.
Non-ARR models: Optionally show Cash Burn per Net New Gross Profit = Net Cash Burn ÷ Net New Gross Profit (label it clearly).
Formula
Practical considerations -
Cash basis: Use Operating Cash Flow (OCF) + Investing, exclude Financing (debt/equity).
Same period: Numerator and denominator must be the same quarter/month.
Denominator discipline: Use live, in-period Net New ARR (exclude signed-not-live, acquired ARR, currency translation).
De-noise: If working-capital swings are spiky, use OCF before working-capital changes (add back Δ Accounts Receivable/ ΔAccounts Payable /Δ Inventory) or a rolling TTM average.
Sign convention: Report Net Cash Burn as a positive number when outflows > inflows. If OCF+Investing ≥ 0, you’re cash-flow neutral/positive → Burn Multiple = Not Meaningful.
Non-ARR models: Optionally show Cash Burn per Net New Gross Profit = Net Cash Burn ÷ Net New Gross Profit (label it clearly).
Worked Example
Line item | Amount | Notes |
|---|---|---|
Net Cash Burn (in Q4) | $1,800,000 | Cash outflows (Operating + Investing) minus inflows; excludes Financing |
Net New ARR (in Q4) | $600,000 | New + Expansion − Contraction − Churn (live in Q4; exclude FX impact) |
Burn Multiple (in Q4) | 3.0× | 1.8 ÷ 0.6 |
Notes
ARR only: Denominator is Net New ARR that actually went live this period.
Normalize one-offs: Back out unusual cash items (e.g., big prepaids); disclose if adjusted.
Guardrail: If Net New ARR ≤ 0 or Operating Cash Flow +Investing ≥ 0, show Not Meaningful and explain drivers.
Segment for signal: New-logo vs. expansion; SMB vs. enterprise; regions/channels.
Worked Example
Line item | Amount | Notes |
|---|---|---|
Net Cash Burn (in Q4) | $1,800,000 | Cash outflows (Operating + Investing) minus inflows; excludes Financing |
Net New ARR (in Q4) | $600,000 | New + Expansion − Contraction − Churn (live in Q4; exclude FX impact) |
Burn Multiple (in Q4) | 3.0× | 1.8 ÷ 0.6 |
Notes
ARR only: Denominator is Net New ARR that actually went live this period.
Normalize one-offs: Back out unusual cash items (e.g., big prepaids); disclose if adjusted.
Guardrail: If Net New ARR ≤ 0 or Operating Cash Flow +Investing ≥ 0, show Not Meaningful and explain drivers.
Segment for signal: New-logo vs. expansion; SMB vs. enterprise; regions/channels.
Worked Example
Line item | Amount | Notes |
|---|---|---|
Net Cash Burn (in Q4) | $1,800,000 | Cash outflows (Operating + Investing) minus inflows; excludes Financing |
Net New ARR (in Q4) | $600,000 | New + Expansion − Contraction − Churn (live in Q4; exclude FX impact) |
Burn Multiple (in Q4) | 3.0× | 1.8 ÷ 0.6 |
Notes
ARR only: Denominator is Net New ARR that actually went live this period.
Normalize one-offs: Back out unusual cash items (e.g., big prepaids); disclose if adjusted.
Guardrail: If Net New ARR ≤ 0 or Operating Cash Flow +Investing ≥ 0, show Not Meaningful and explain drivers.
Segment for signal: New-logo vs. expansion; SMB vs. enterprise; regions/channels.
Best Practices
Lock definitions: Publish exactly what’s in Net Cash Burn and Net New ARR; keep consistent.
Pair with margin: Improve Gross Margin / Contribution Margin — lower variable cost shortens Burn Multiple fast.
Time-align GTM: Analyze with a 1-quarter lag between S&M spend and ARR realization.
Report multiple views: Current period, TTM, and by segment to avoid being fooled by mix.
Best Practices
Lock definitions: Publish exactly what’s in Net Cash Burn and Net New ARR; keep consistent.
Pair with margin: Improve Gross Margin / Contribution Margin — lower variable cost shortens Burn Multiple fast.
Time-align GTM: Analyze with a 1-quarter lag between S&M spend and ARR realization.
Report multiple views: Current period, TTM, and by segment to avoid being fooled by mix.
Best Practices
Lock definitions: Publish exactly what’s in Net Cash Burn and Net New ARR; keep consistent.
Pair with margin: Improve Gross Margin / Contribution Margin — lower variable cost shortens Burn Multiple fast.
Time-align GTM: Analyze with a 1-quarter lag between S&M spend and ARR realization.
Report multiple views: Current period, TTM, and by segment to avoid being fooled by mix.
FAQs
What cash flows are included in “Net Cash Burn”?
Operating + Investing Cash Flows (net); exclude Financing (debt/equity raises, repayments).What if Net New ARR is zero or negative?
The metric is not meaningful. Show Not Meaningful and explain drivers (churn spike, seasonal downgrades, etc.).How is Burn Multiple different from CAC Payback?
CAC Payback asks how long gross profit takes to repay acquisition spend. Burn Multiple asks how much total cash the company burns per $1 of Net New ARR (all functions, not just S&M).How does Magic Number compare?
Magic Number estimates ARR growth per $1 of prior-quarter S&M. Burn Multiple uses total cash burn and is tougher to game.Can profitable companies have a Burn Multiple?
If Net Cash Burn ≤ 0, you’re cash-flow neutral/positive—report N/A or “Cash-flow positive; Burn Multiple not applicable.”
FAQs
What cash flows are included in “Net Cash Burn”?
Operating + Investing Cash Flows (net); exclude Financing (debt/equity raises, repayments).What if Net New ARR is zero or negative?
The metric is not meaningful. Show Not Meaningful and explain drivers (churn spike, seasonal downgrades, etc.).How is Burn Multiple different from CAC Payback?
CAC Payback asks how long gross profit takes to repay acquisition spend. Burn Multiple asks how much total cash the company burns per $1 of Net New ARR (all functions, not just S&M).How does Magic Number compare?
Magic Number estimates ARR growth per $1 of prior-quarter S&M. Burn Multiple uses total cash burn and is tougher to game.Can profitable companies have a Burn Multiple?
If Net Cash Burn ≤ 0, you’re cash-flow neutral/positive—report N/A or “Cash-flow positive; Burn Multiple not applicable.”
FAQs
What cash flows are included in “Net Cash Burn”?
Operating + Investing Cash Flows (net); exclude Financing (debt/equity raises, repayments).What if Net New ARR is zero or negative?
The metric is not meaningful. Show Not Meaningful and explain drivers (churn spike, seasonal downgrades, etc.).How is Burn Multiple different from CAC Payback?
CAC Payback asks how long gross profit takes to repay acquisition spend. Burn Multiple asks how much total cash the company burns per $1 of Net New ARR (all functions, not just S&M).How does Magic Number compare?
Magic Number estimates ARR growth per $1 of prior-quarter S&M. Burn Multiple uses total cash burn and is tougher to game.Can profitable companies have a Burn Multiple?
If Net Cash Burn ≤ 0, you’re cash-flow neutral/positive—report N/A or “Cash-flow positive; Burn Multiple not applicable.”
Related Metrics
Net New ARR, CAC, CAC Payback (Months), Magic Number, Gross Margin (%), Free Cash Flow (FCF), Rule of 40 (%)
Commonly mistaken for:
CAC Payback: Time to recoup CAC from gross profit (S&M-focused).
Magic Number: Revenue growth per prior-quarter S&M dollar.
Operating Cash Flow Margin: Cash flow as a percentage of revenue (not per-$ ARR efficiency).
Related Metrics
Net New ARR, CAC, CAC Payback (Months), Magic Number, Gross Margin (%), Free Cash Flow (FCF), Rule of 40 (%)
Commonly mistaken for:
CAC Payback: Time to recoup CAC from gross profit (S&M-focused).
Magic Number: Revenue growth per prior-quarter S&M dollar.
Operating Cash Flow Margin: Cash flow as a percentage of revenue (not per-$ ARR efficiency).
Related Metrics
Net New ARR, CAC, CAC Payback (Months), Magic Number, Gross Margin (%), Free Cash Flow (FCF), Rule of 40 (%)
Commonly mistaken for:
CAC Payback: Time to recoup CAC from gross profit (S&M-focused).
Magic Number: Revenue growth per prior-quarter S&M dollar.
Operating Cash Flow Margin: Cash flow as a percentage of revenue (not per-$ ARR efficiency).
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