SaaS

Annual Recurring Revenue

Detailed Description

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.

Created with Highcharts 11.1.0ACV start of the yearACV end of the yearNet Burn (USD)Net New ARR (USD)Burn MultipleJanFebMarAprMayJunJulAugSepOctNovDec0%80000%160000%240000%320000%400000%36%48%60%72%84%96%Highcharts.com

How To Calculate

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.

Formula

ƒ Sum(Net Burn) / Sum(Net New ARR)

Benchmark

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

Created with Highcharts 11.1.0Burn MultipleJanFebMarAprMayJunJulAugSepOctNovDec020406080100Highcharts.com

FAQ's

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.