Founders often confuse burn rate with burn multiple. They're related but measure fundamentally different things.
Burn rate
Burn rate is a cash flow metric: how many dollars per month are you spending?
- Gross burn: total monthly cash out (payroll + rent + software + everything else)
- Net burn: gross burn minus revenue received (cash-in basis, not ARR bookings)
A company spending $500k/month with $200k in cash received has a $300k net burn.
Burn rate tells you how long your runway lasts: Runway = cash balance / net monthly burn
Burn Multiple
Burn Multiple relates spending to output: net burn / net new ARR.
It doesn't care about the absolute dollar amount — it asks whether your spending is generating proportional growth. A $5M/month burn is fine if you're adding $10M+ in net new ARR each month.
Which to optimize
- Near-term (fundraise planning): focus on burn rate — determines when you run out of cash
- Medium-term (investor narrative): focus on Burn Multiple — determines whether your spending is efficient enough to justify the next round
- Long-term (unit economics): focus on Burn Multiple converging toward 0 as ARR compounds and burn stays flat
Use the Burn Multiple Calculator to track both your runway and your efficiency multiple in one place.