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Unit economics

Burn multiple

Net cash burned divided by net new ARR added. How much cash it costs to buy a pound of new recurring revenue.

Burn multiple is net burn รท net new ARR. A multiple of 1.5 means you burned $1.50 for every $1 of new recurring revenue added.

It is deliberately unforgiving. Every inefficiency in the business, not just sales and marketing, lands in the numerator, so it catches problems that magic number and CAC miss by construction.

Under 1 is exceptional, 1 to 1.5 is strong, and above 3 means the business is buying growth expensively enough that it needs either a clear path down or a lot of runway.

Related terms

  • Rule of 40 Revenue growth rate plus profit margin. A rough test of whether a software business is balancing growth and profitability.
  • ARR (Annual Recurring Revenue) The annualised value of your recurring subscriptions, normally MRR multiplied by twelve, used as the headline size of a subscription business.
  • Magic number Net new ARR in a quarter divided by the previous quarter sales and marketing spend. A sales-efficiency measure.