Both burn multiple and Rule of 40 measure SaaS capital efficiency — but from different angles, for different audiences, and at different stages.
Rule of 40
Score = ARR Growth Rate % + EBITDA Margin %
A 60% ARR growth with -20% EBITDA margin scores 40. A 20% growth with 25% EBITDA margin also scores 45.
Rule of 40 uses EBITDA — which is an accounting metric that includes depreciation and doesn't account for cash timing. It's used in investor reporting, public company comparisons, and valuation discussions.
Burn Multiple
Score = Net Cash Burn ÷ Net New ARR
A company at 1.5× is spending $1.50 for every $1 of new ARR.
Burn multiple uses cash, not EBITDA. It's more relevant for private companies where cash is finite and runway is a real constraint. It's more actionable operationally.
When each applies
| Context | Use this |
|---|---|
| VC fundraising deck (Series A/B) | Both — Rule of 40 for scale, burn multiple for efficiency |
| Internal operational tracking | Burn multiple — cash is real |
| Public company comparables | Rule of 40 — standard analyst metric |
| Early stage (< $1M ARR) | Burn multiple — EBITDA is meaningless early |
| Growth stage ($10M+ ARR) | Both |
The key difference
A company can score well on Rule of 40 but poorly on burn multiple if: - It has non-cash expenses distorting EBITDA - It uses aggressive revenue recognition that inflates EBITDA - It has high working capital consumption not reflected in EBITDA
Conversely, a company can have a good burn multiple (efficient cash use) but score below 40 if growth is decelerating faster than margins improve.
Track both. Burn multiple tells you how efficiently you're scaling. Rule of 40 tells you if the business is balanced.
Calculate your burn multiple at the Burn Multiple Calculator.