Cash Flow
What Is Burn Rate? (and Burn Multiple)
Burn rate is your monthly net cash outflow. Burn multiple is net burn divided by net new revenue, the VC efficiency metric that has replaced ROAS as the capital-raising litmus test since 2023. Under 1x is healthy, 1 to 2x is a yellow flag, above 2x is a red flag. Bootstrapped brands should track it too: it tells you how long you can operate without outside capital.
Burn rate is the rate at which a business consumes cash, usually measured monthly. Burn multiple (David Sacks, 2022) is net burn divided by net new ARR, the efficiency-of-growth metric that's become the dominant VC framework since 2023.
How they're calculated
Net Burn Rate = Monthly Cash Outflow − Monthly Cash Inflow
Burn Multiple = Net Burn ÷ Net New ARR (or net new revenue, for ecom)
Example
A DTC brand: $620K cash outflow / month, $560K inflow → net burn $60K/month. Last quarter the brand added $200K of new monthly recurring revenue. Burn multiple = ($60K × 3 months) ÷ $200K = $180K ÷ $200K = 0.9x. Healthy, under 1x. Each $1 of new revenue cost $0.90 of burn.
Burn multiple thresholds (David Sacks framework)
- < 0.5x, Outstanding
- 0.51.0x, Good
- 1.01.5x, Acceptable
- 1.52.0x, Suspect
- > 2.0x, Bad
The most common mistake
Reporting gross burn instead of net burn. Gross burn ignores revenue. A brand can have $800K gross burn and $700K revenue → only $100K net burn. Gross burn overstates urgency; net burn predicts runway.
Frequently Asked Questions
gross vs net burn?
Gross = outflow only. Net = outflow minus inflow. Use net for runway, gross for diagnostics.
why does burn multiple matter?
It's the VC efficiency metric since 2023. Under 1x is healthy; above 2x is a red flag.
do bootstrapped brands track burn?
Yes, call it net burn. Determines how long the founder can keep operating without external capital.
Related Terms
- What is cash runway?
- What is free cash flow margin?
- What is net margin?
- Ecommerce cash runway benchmarks
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
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