Operational metric
Burn Multiple (capital efficiency)
Burn Multiple measures capital efficiency by dividing how much cash a business burned in a period by how much new ARR it produced. Coined by David Sacks (Craft Ventures), it has become the standard SaaS-investor capital-efficiency metric. Indie SaaS founders should know it; below 1x is exceptional, 1-2x is healthy, above 5x is concerning.
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Formula
Burn Multiple = net cash burn in period / net new ARR in period
Where:
- net cash burn = Cash spent minus cash received in the period (negative = cash positive).
- net new ARR = New ARR added in the period (new customers + expansion - churn).
Worked example
In Q3, burned $30,000 cash and added $20,000 in net new ARR. Burn multiple = $30,000 / $20,000 = 1.5x. That is healthy for venture-backed; 'amazing' for indie SaaS would be under 1x (more ARR than burn).
What it tells you
- How much capital each dollar of ARR is costing.
- Whether the growth-rate is sustainable on current burn.
- An investor-grade comparison metric across SaaS.
What it does NOT tell you
- Quality of the ARR added. Cheap-but-churny ARR has a misleading burn multiple.
- Whether the burn is investment (going up) or maintenance (staying flat).
- Profitability path. Burn multiple is a capital-efficiency metric, not a profitability one.
Common miscalculations
- Confusing burn multiple with burn rate. Burn rate is dollars per month; burn multiple is dollars-per-dollar-of-new-ARR.
- Using gross new ARR (new sales only) instead of net new ARR. Net is the right denominator.
- Calculating in a period with very low net new ARR. Burn multiple is unstable when ARR change is small or negative.
Frequently asked
- Is burn multiple relevant for indie SaaS?
- Yes, especially as the business grows. Even self-funded indie SaaS has a 'burn' (founder time + tooling cost); thinking about that as a multiple of new ARR is a useful discipline.
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