The Importance of Burn Multiple in SaaS Startups

One key metric that SaaS startups should focus on is the burn multiple, which measures the efficiency of a company's spending. The burn multiple is calculated by dividing the total burn or expenses by the net new annual recurring revenue (ARR). This metric provides a clear picture of a company's capital efficiency and can help founders and investors gauge the company's financial health. While the ideal burn multiple may vary depending on the stage of the startup, it should generally decrease over time as the company grows. Startups should aim to keep their burn multiple below a certain threshold, such as 2, to ensure they are not excessively burning cash.