Burn Multiple
Formula
Net Burn ÷ Net New ARR
Definition
Burn Multiple measures how much capital a company consumes to generate each dollar of incremental revenue. It is typically calculated by dividing net burn over a period by the net new ARR generated over the same period.
Lower values indicate greater capital efficiency. When net cash burn is not available, EBITDA loss is sometimes used as an operating proxy, although it does not capture working-capital movements, capital expenditures, or other differences between earnings and cash flow. Depending on the business and available data, some implementations may also use growth in total annualized revenue rather than recurring revenue.
Interpretation
A declining Burn Multiple generally indicates improving capital efficiency, while a rising multiple means the business is consuming more capital relative to the growth it is producing.
Burn Multiple is only meaningful while a company is consuming capital and adding revenue. If the business is profitable or its revenue run rate is declining, the ratio no longer provides a useful measure of growth efficiency.
Benchmark
- Below 1x
- Excellent capital efficiency
- 1x to 2x
- Healthy
- 2x to 3x
- Worth monitoring
- Above 3x
- High burn relative to growth
These are commonly used reference points for the conventional cash-burn calculation and should be interpreted in the context of company stage, growth rate, and gross margin. An EBITDA-based calculation may not be directly comparable.
In MetricFrame
MetricFrame calculates Burn Multiple using EBITDA loss as a proxy for net burn when a direct cash-burn measure is not available. It divides the magnitude of quarterly EBITDA loss by the increase in annualized revenue run rate. The metric is calculated only when EBITDA is negative and annualized revenue run rate increased during the period.
MetricFrame also calculates the inverse of the Burn Multiple, measuring the annualized revenue run rate added per dollar of EBITDA loss. This provides another view of capital efficiency, where higher values indicate greater efficiency.