Burn Multiple is a measure of capital efficiency, comparing how much ARR a company adds in a period to how much cash was burned.
Burn Multiple = Burn÷Net New ARRX-1
While Burn Multiple is calculated using burn by default, if SaaSGrid does not have cash balance figures, Burn Multiple will be calculated using net income. You can also toggle to using net income in settings, which can be helpful in analyzing business efficiency excluding cash flow cycles.
Net Income = Revenue—All Expenses
If a company increases its cash (when burn is used) or is profitable (when net income is used) in a period, the Burn Multiple will be negative. If ARR does not increase in a period, a value for Burn Multiple will not be returned.
Burn Multiple is a great catch-all efficiency metric because it shows the inputs and outputs of the entire business: how much did ARR grow, and how much money did you have to spend to do it? The best thing about Burn Multiple is that it can't be calculated incorrectly by misclassifying expenses, which can be a tricky exercise. A company can simply look at how much their bank account changed in a period, and compare that number to how their ARR changed. Burn Multiple is inevitably high early in a company's life cycle: a built out engineering team with 1 to 2 sales reps will likely consume much more cash than they add in ARR. However, as companies mature they can aim to consume cash at the same rate they add ARR, hopefully at a ratio of 1:1.