A burn multiple is the amount of cash burned by annual recurring revenue (ARR). For example, if a company burns $10MM to add $30MM ARR the burn multiple is 3.0x. Higher burn multiples are worse and imply the company will run out of money faster. This is a better measure of overall efficiency compared to LTV/CAC because it encompasses all costs (burn).
What’s a good burn multiple? (Source a16z)
|ARR||25th Percentile (Bad)||50th Percentile (Median)||75th Percentile (Good)|
- This is a useful measure to help run a startup during a recession since companies wit a high burn multiple will need to raise money but availability of capital declines (inflation causes downward pressure on startup valuations).