Burn multiple is a SaaS metric used to measure the efficiency of a company’s customer acquisition strategy. It represents the amount of money a company burns to generate incremental dollars of ARR (Annual Recurring Revenue). The more the Burn Multiple, the higher a company spends on achieving growth. A lower Burn Multiple represents efficiency in an organization.
It is calculated by dividing the net burn rate by the annual recurring revenue. For example, if a company burns $1000,000 M in the quarter while adding $500,000 to its ARR, it represents a 2X Burn Multiple. A higher burn multiple is a signal for a company to cut costs immediately.
ƒ Sum(Net Burn) / Sum(Net New ARR)
A Burn Multiple is seen as a sign of a healthy company, and most SaaS companies target a Burn Multiple of <2 is good. A Burn Multiple >4 is alarming.
Net Burn
Net Annual Recurring Revenue Added
Bessemer Efficiency Score
The Burn Multiple is used for measuring how long it takes for the company to recoup the cost of acquiring a customer, while the CAC represents the cost of acquiring a new customer.
Burn Multiple can only measure the cost of acquiring new customers. However, it doesn't consider customer churn, the cost of serving existing customers, and other operational expenses.