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2 million of burn and 1 million of new ARR
In the quarter, the company burned 2,000,000 of cash and added 1,000,000 of net new ARR. Both figures cover that same quarter. Sacks uses this pair as a worked example.
Net burn in the period: 25% lower
Change net burn in the period to 1,500,000 while keeping the other example values the same.
Net burn in the period: 25% higher
Change net burn in the period to 2,500,000 while keeping the other example values the same.
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Quick answer
What does the Burn multiple calculate?
How much cash burned for each new dollar of ARR? This calculator uses net burn in the period, and net new arr to estimate cash per new arr dollar immediately in your browser.
With the values currently entered, the result is 2× — burn multiple. It also shows net burn, net new arr, and arr per burn dollar.
How to use the Burn multiple
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Net burn in the period
- Net new ARR
Burn multiple formula
Burn multiple = net burn ÷ net new ARR. Both figures cover the same period. The ratio does not compute when net new ARR is zero.
Assumptions
- David Sacks (Craft Ventures, April 2020) defines the burn multiple as net burn divided by net new ARR. His worked example is $2 million of quarterly burn and $1 million of net new ARR.
- A positive burn is cash that left. A negative burn is cash the period added. Net new ARR should already subtract churn and contraction. The two boxes have to cover the same month, quarter, or year.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Defines the burn multiple as net burn divided by net new ARR for the same period. A worked example is $2 million of quarterly burn and $1 million of net new ARR, a 2× multiple. The ratio does not compute when net new ARR is zero.
Manage your financesUS Small Business AdministrationScope: US small-business planning; method is generalAsks for a cash-flow view of money in and money out. The cash method records a sale when the payment arrives, which is the timing this page uses.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Burn multiple example and edge cases
David Sacks defines the burn multiple as net burn divided by net new ARR, for the same period. The multiple says how much cash that period used for each new dollar of annual recurring revenue. The definition is from his April 2020 note for Craft Ventures.
Example: 2 million of burn and 1 million of new ARR
In the quarter, the company burned 2,000,000 of cash and added 1,000,000 of net new ARR. Both figures cover that same quarter. Sacks uses this pair as a worked example.
- Net burn in the period
- 2,000,000
- Net new ARR
- 1,000,000
Calculated result2×burn multiple
The burn multiple is 2. Each new dollar of ARR took 2 dollars of cash in the quarter. Sacks calls that 2× result reasonable for an early-stage startup. He calls 5,000,000 of burn on 1,000,000 of new ARR a terrible 5× multiple.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- The multiple is cash out divided by new ARR. A larger multiple spent more cash for each new dollar of ARR in that period.
- Net new ARR already subtracts churn and contraction. Sacks writes that churn shrinks the denominator and lifts the multiple. He also writes that the ratio does not compute when new ARR is zero.
Edge cases worth checking
Burn and new ARR cover different periods
A quarter of burn set over a year of new ARR makes the multiple look smaller than the quarter deserved. Use the same month, quarter, or year on both lines.
Net new ARR for the period is zero
Sacks writes that a pre-revenue period has a zero denominator, so the ratio does not compute. The cash that left is still the burn you typed.
What changes the result most
Net burn in the period
Use a current amount for net burn in the period. Include fees or recurring costs that belong in the same figure.
Net new ARR
Use a current amount for net new arr. Include fees or recurring costs that belong in the same figure.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Net burn in the period: 25% lower
1,500,0001.5×burn multiple
Net burn in the period: 25% higher
2,500,0002.5×burn multiple
Net new ARR: 25% higher
1,250,0001.6×burn multiple
Common mistakes
Check net burn in the period
David Sacks (Craft Ventures, April 2020) defines the burn multiple as net burn divided by net new ARR. His worked example is $2 million of quarterly burn and $1 million of net new ARR. Make sure this matches the number you enter.
Keep net new arr consistent
A positive burn is cash that left. A negative burn is cash the period added. Net new ARR should already subtract churn and contraction. The two boxes have to cover the same month, quarter, or year. Use the same units and time period throughout the calculation.
Do not rely on one burn multiple scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
How much cash burned for each new dollar of ARR?
It does not replace a quote, contract, accountant, or local employment guidance.