The lower the burn multiple, the cheaper your growth. 2× means you burn two units of cash for every unit of new ARR. In Sacks's example, a startup that burns $2M in a quarter to add $1M of ARR is at 2×, reasonable for an early-stage company. One that burns $5M for the same ARR is at 5× and should cut costs.

Read the trend, not a single number. Monthly figures are noisy; one large contract or a late invoice can swing them. Quarterly is healthier. If the multiple rises quarter over quarter, either burn is growing faster than ARR or growth is slowing. Sacks argues most problems in a business eventually show up in this number.

There are two ways to bring the multiple down: add more ARR for the same burn, or add the same ARR for less burn. The target box on the right shows both. The fastest win is often churn and contraction, which quietly erode ARR. Reducing them raises net new ARR without asking for any extra marketing budget.

Treat a high multiple as a product signal too. Sacks notes that if extraordinary investment is needed to deliver growth, product-market fit may not be as strong as it looks. If you're pushing growth with money, growth stops when the money does.

The scale is meant for revenue-generating startups. Without revenue, net new ARR is zero and the ratio doesn't compute. If the company is generating cash, the multiple loses its meaning; at that point the Rule of 40 is a better way to weigh growth against profitability.