Burn multiple acts as the ultimate efficiency score for your business. It measures exactly how much cash you consume to generate a single dollar of net new ARR. Investors look at this number first to decide if your growth justifies the capital you spend.
Growth at all costs belongs in the past. Today's market rewards sustainable scaling. In 2026, a sub-1.5x multiple proves you run a tight ship. It signals that you value resourcefulness.
This post equips model owners and finance teams with everything you need to master the metric. We layout the exact formula and how to calculate it. You'll learn the benchmarks investors expect to see right now. We also cover the practical levers you can use to boost capital efficiency immediately.
Why burn multiple matters in 2026
The funding environment shifted. Investors pay more attention to how you spend than how fast you grow.
Back in 2020 and 2021, you could chase growth at all costs. Companies raised big rounds and spent heavily to acquire users. That stopped when interest rates climbed and cash got expensive. By 2022, the smart move was to tighten up and focus on capital efficiency. Burn rate became a focus in board meetings.
The shift from growth to capital efficiency
The global economy isn't growing fast. The IMF projects 1.8% real GDP growth in 2026. Investors now reward discipline. They want to see every dollar burned turn into lasting recurring revenue.
Burn multiple tracks that tradeoff. It answers: how many dollars are you burning for each $1 of net new ARR? Lower is better. If you're burning $100k a month and adding $150k of ARR (annualized to $1.8M), that's a very different story than burning $300k for the same growth.
Investors care. In 2025, 56% of seed investors and 83% of Series C+ investors called burn multiple a critical metric. That's up 31% from 2022. Burn multiple is the shorthand for capital discipline.
Signals to boards and investors
When you show your burn multiple, investors see a lot at once.
A low multiple (below 1.5x) tells them you run an efficient go-to-market. You're turning spend into ARR without waste. If it's above 3x, they'll worry you're overspending to acquire customers or losing too many to churn.
Boards use burn multiple to set boundaries. If your ratio climbs above target, expect clear conversations about cutting costs or changing pricing. Burn rate impacts your fundraising plan, hiring, growth strategies, and how you talk about your financial health—internally and externally.
Burn multiple also shapes valuation. When yours is low compared to your growth, you're in a strong position for fundraising.
Defining the metric: net burn vs. net new ARR
Here's the basic formula:
Burn multiple = net burn ÷ net new ARR
But getting those numbers right matters.
Clarifying net burn
Net burn is the cash you use each period after factoring in revenue. It's not your income statement loss.
Net burn rate brings in your revenue and other cash coming in. It shows net cash exiting each month after you count what's coming in. Formula:
Net burn rate = total monthly expenses − total monthly revenue
Use cash basis, not accrual. When you use accrual accounting, adjust for items that show up on your P&L but not in your bank account. Look at your cash flow statement for accuracy.
Include:
- salaries and payments to contractors
- office costs and rent
- marketing and sales spend
- software subscriptions and services
- cost of goods sold (cash only)
Exclude:
- cash from financing (equity or debt)
- one-time receipts not tied to operations
- non-cash charges like depreciation or stock-based comp
Show both your raw net burn and an adjusted version that breaks out one-time costs. If you paid $200k to relocate offices in Q3, call that out. Investors want to see your true run rate.
Know the difference between gross burn rate (total monthly cash spent) and net burn. Gross burn is every dollar out. Net burn subtracts cash in from customers. Investors ask for both. Gross burn shows cost discipline. Net burn drives runway and the burn multiple.
Understanding net new ARR
Net new ARR is how much your annual recurring revenue increased in the period. It's the change in recurring revenue for the period.
beginning ARR + new business + expansion − contraction − churn = ending ARR
Net new ARR = new business + expansion − contraction − churn
Every part matters:
- new business: new customers this period
- expansion: more from current customers (upsells, cross-sells, extra seats)
- contraction: lost ARR when customers cut back
- churn: lost ARR on cancellations
Your rules for new business vs. expansion affect your denominator. Pick your approach, document it, and stick with it.
Calculating burn efficiency
With clear definitions, the math is fast.
Formula in practice
- Pick your period. Monthly, quarterly, or trailing twelve months. Use the same window for net burn and net new ARR.
- Calculate net burn for that period. Add up operating cash outflows, subtract cash in from customers, leave out financing inflows. Or use:
Net burn = starting cash − ending cash − financing cash in
- Figure out net new ARR. Use the ARR bridge: new + expansion − contraction − churn.
- Divide net burn by net new ARR.
Burn multiple = net burn ÷ net new ARR
Example: If you burned $500k in Q1 and added $300k in net new ARR, your burn multiple is $500,000 / $300,000 = 1.67.
For trailing twelve months, sum both numbers over the year and divide. This smooths out seasonal spikes.
Special items to include or exclude
Some items can throw off your ratio if you don't handle them right.
- capital expenditures: include big, operational CAPEX if you pay from operating cash. If it's purely for growth, show "operating cash burn" that leaves out CAPEX as a separate view.
- capitalized R&D: only the cash paid counts. If you capitalize some R&D, include the cash outlay.
- deferred revenue: burn multiple uses ARR, not billings. Show how billings convert to recognized ARR.
- stock-based compensation: not cash. Doesn't affect net burn. If you present a version that adds SBC, show both.
- one-time costs: don't let big, rare events inflate your ratio. Operating burn rate cuts these out to show steady ops.
Best practice: present both raw net burn and an adjusted net burn. Call out one-time items, financing, and non-cash adjustments. Be clear about whether you're using recognized ARR or billings converted to ARR.
Edge cases and adjustments
Not every business fits the standard SaaS model. Here are some ways to adapt.
- pre-revenue or near-zero ARR: if net new ARR is zero, you can't calculate burn multiple. Track gross burn and runway until recurring revenue ramps. At early stage, expect higher multiples (2 to 3x) as you find product-market fit.
- usage-based revenue: revenue flexes with customer activity. Separate true expansion from usage swings. Spell out your approach.
- services-heavy mix: if you sell a mix of professional services and SaaS, focus on recurring revenue for burn multiple. If services are important, show both for transparency.
- seasonality: use T12 to smooth out big seasonal changes. Make the pattern clear in your reporting.
- multi-year contracts and early renewals: for early renewals, count only the incremental expansion in ARR, not the total deal size. Don't double-count ARR.
- timing lags: Make sure your periods for cash and ARR match. If you collect annual payments up front, count ARR as the customer uses it, don't let timing distort your ratio.
Setting benchmarks for 2026
Investors weigh your burn multiple against stage and ARR band. Here’s what stands out in 2026.
Thresholds by stage
Here's the David Sacks framework:
- amazing: less than 1.0x
- great: 1.0-1.5x
- good: 1.5-2.0x
- suspect: 2.0-3.0x
- bad: more than 3.0x
Use these as anchors. Your stage and ARR band matter too.
- seed / pre-seed: early-stage burn multiples average 2.5-3.4x. At seed, it's higher risk to run above 3x.
- series A: median is around 1.6x.
- exceptional: less than 1.0x
- strong: 1.0–1.5x
- median: 1.5–2.0x
- concerning: 2.0–3.0x
- critical: more than 3.0x
- series B / growth: at scale ($25M-$50M ARR), aim for 1.4x. Top performers hit sub-1.0x. Investors look for 1.0-1.5x at this stage.
- later / scale: at $100M+ ARR, target near or below 1.0x. The best run even leaner. Above 1.5x is inefficient at this size.
ARR-specific benchmarks:
- < $1M ARR: average is 3.4x, lots of volatility
- $1-5M ARR: top quartile 1.5-2.5x, aim for less than 2.0x
- $5-20M ARR: best-in-class 0.6-1.2x, target less than 1.5x
- $20-100M ARR: target less than 1.2-1.5x
- > $100M ARR: top performers at or below 1.0x
Benchmarks guide you, but context is key. Your best burn rate depends on your market and funding landscape.
Sector differences
Most models fit B2B SaaS, but other sectors look different.
- AI-native SaaS: Medians hit 0.8-1.2x in 2025. Product leverage and automation improve efficiency. If you use AI, highlight the impact.
- marketplaces and consumer: expect higher burn up front. If that's you, benchmark against direct peers.
- vertical SaaS: Niche companies often get higher prices and better retention. Lean into those when reporting your metrics.
Common pitfalls
Small mistakes or inconsistencies will skew your burn multiple. Here are the ones to watch for:
- mixing accrual and cash: Burn rate is about real cash out, not just income statement losses.
- mismatched time windows: Make sure net burn and net new ARR line up in the same period.
- treating one-time costs as recurring: Pull out one-off spikes so they don't distort your ratio.
- forgetting timing differences: Reconcile billings to ARR. Make these connections clear.
- ignoring lumpy payments: Smooth out spikes with T12 averaging. Forecasting gets easier.
- mixing up gross and net burn: Always clarify which number you're using. Burn multiple uses net burn.
- inconsistent ARR tags: Pick clear rules and apply them so net new ARR is steady. When in doubt, write it down and be consistent.
- interpreting a "good" multiple with weak growth: If you cut burn but ARR growth stalls, your ratio looks fine but momentum disappears. Always show burn multiple with growth rate.
Improving efficiency
You can improve your burn multiple by adding more net new ARR or cutting net burn. Both work, here's how to pull each lever.
Boost net new ARR:
- improve retention. Lower churn means you keep more ARR each period. Focus on onboarding, product quality, and customer success.
- drive expansion. Upsells, more seats, cross-sells, and new offerings count. Expansion can be 40% of new ARR in mature SaaS.
- increase win rates. If your sales team closes more leads, you add ARR faster. Sharpen training, your pitch, and lead quality.
- raise prices. Price increases flow straight to ARR, try changes with new cohorts first.
Reduce net burn:
- make sales and marketing more efficient. Lower your CAC or shorten CAC payback. Try new channels and cut underperformers.
- improve gross margin. Lower hosting costs, automate support, or renegotiate vendors.
- pace headcount. Only hire for need. Use contractors and tie team growth to revenues.
- cut non-essential spend. Review software, travel, and office needs. Spend directly on growth and product.
Companies hitting burn multiples below 1.5x usually have CAC paybacks of 6-9 months. The faster you pay back CAC, the less you burn per unit of ARR. Use CAC payback stats to explain your efficiency.
Using the metric in forecasting and planning
Burn multiple isn't just a rearview metric. Make it a leading indicator and use it as a planning guide.
- set thresholds. Define your target range. If your forecast shows burn multiple climbing, review your growth or cost strategy right away.
- build scenarios. Test what happens if you grow faster or slow burn. Want to know what five new reps do to your ratio, or a 20% lift in expansion ARR? Runway's scenario planning makes it easy to compare side by side.
- link to runway. Runway = cash balance ÷ abs(net burn). If your burn multiple rises, runway shrinks. Set rules to review discretionary spend or start fundraising if it goes up.
- align with board reporting. Show your burn multiple each quarter alongside ARR growth, CAC payback, and gross margin. Report the trend, not just a snapshot. Explain any major swings.
- use in hiring decisions. Before you approve a new hire, estimate the impact on burn multiple. If that sales rep bumps net burn by $15k and adds $20k in monthly ARR, your incremental multiple is 0.75x—a solid move. If the math doesn't work, wait.
How Runway helps with financial modeling
Manual tracking is a pain. Runway pulls the numbers for you and connects them to your bigger financial plan.
- calculate burn and ARR in one spot. Sync your accounting system and get a living income statement. Define your burn and net new ARR. The model updates automatically.
- build your ARR bridge. Connect Stripe, HubSpot, Salesforce, or your billing tool. Track each customer, see ARR by segment, and let your data do the heavy lifting.
- plan scenarios. Want to see the effect of a spending cut or bump in expansion? Plan it, model it, and check the impact on burn multiple, runway, and cash.
- collaborate easily. Sales, marketing, and finance work off the same model. Real-time adjustments mean everyone's on the same page for planning.
- automate reporting. Burn multiple, runway, CAC payback—all tracked and updated for your team and board. The dashboard stays current, so you always share the latest results.
Burn rate isn't just a monthly line item. It's a strategic lever you can use to make better choices and lead with confidence. Runway keeps your plans bold, your data connected, and your team aligned.
Make burn multiple your north star metric
Burn multiple sits at the core of capital efficiency. Investors will keep asking for it in 2026 and beyond.
Start by calculating it with real cash numbers. Line up billings and ARR. Call out one-time items. Share your metric every quarter alongside growth and payback numbers.
Set your threshold by stage. If you're earlier, allow for higher burn but sketch your plan to tighten it. At later stages, target sub-1.2x.
Think of burn multiple as your guiding rail. If it moves up, review your spend and growth assumptions. Try scenarios to see the impact of your calls on this number.
Most importantly, connect burn multiple to the bigger picture. Track it with runway, CAC payback, and LTV:CAC. These together show the health of your business.
Want to forecast better and stop guessing? Get started with Runway to build a plan and keep your team and investors in sync.