Burn Multiple = Net Burn/Net New ARR

Burn Multiple is a metric created by David Sacks to measure the capital efficiency of ARR growth in B2B SaaS companies. In this episode, Dave "CAC" Kellogg and Ray "Growth" Rike discuss alternatives to the Burn Multiple and then dive into the details of the two primary burn multiple components which are Net Burn and Net New ARR.

There are multiple metrics that attempt to measure capital efficiency of B2B SaaS companies including:

• Hype Ratio = Capital Raised / ARR

• Cash Conversion Score: Current ARR / (Total Capital Raised to date - cash)

• Efficiency Score = Net New ARR / Net Burn

The Burn Multiple uses two primary components in it's calculation which is:

• Burn Multiple = Net Burn / Net New ARR

• Net Burn = Revenue in the Period - Operating Expenses in the Period

• Net New ARR = New Logo ARR + Expansion ARR - Down-sell ARR - Churned ARR

What is a good Burn Multiple? It depends on the stage of the company, but let's use David Sacks benchmark framework from his original Burn Multiple article in 2020:

• Amazing = < 1x

• Great = 1.0 - 1.5x

• Good = 1.5 - 2.0x

• Suspect = 2.0 - 3.0x

• Bad = >3x

If you have an investor focused on the Burn Multiple or you have heard about the Burn Multiple but want to understand the details and nuances this episode is a great listen!