Why Burn Multiple Alone Stopped Being Enough
Burn multiple, popularised by David Sacks in 2020, is a useful single-metric view of capital efficiency: how many pounds of net burn does the company incur for every pound of net new ARR added. A burn multiple below 1.0x is very efficient, 1.0 to 1.5x is efficient, 1.5 to 2.0x is acceptable in growth mode, and above 2.0x indicates a business that is spending faster than it is compounding.
The limitation is that burn multiple is an aggregate. A burn multiple of 1.5x can be produced by a company with an efficient go-to-market engine and expensive R&D investment (fine), or by a company with an inefficient go-to-market engine masked by favourable retention (a red flag). Investors in 2026 want to know which one they are looking at. That is why the three metrics below have become the standard follow-up questions.
Net Magic Number: The Go-to-Market Efficiency Test
Net magic number isolates the sales and marketing spend efficiency by measuring how much net new ARR is being generated per pound of GTM spend. The formula:
The multiplication by four annualises a quarterly measurement. The "prior period" convention (sales and marketing spend from the previous quarter) reflects the typical lag between pipeline investment and closed revenue.
The instrumentation challenge is defining "sales and marketing spend" consistently. The standard convention is all headcount cost (fully loaded, including on-costs) for sales, sales development, marketing, customer success attributed to new business, plus programme spend (paid marketing, events, tools, agency). Excluded: engineering headcount, product marketing on existing products, customer success attributed to retention. Finance teams often over-include or under-include on the boundary calls, and the resulting inconsistency is spotted in Series B diligence within about ten minutes.
MRR Efficiency: The Pricing and Packaging Test
MRR efficiency measures how much of each pound of new customer acquisition cost translates into monthly recurring revenue that will compound over customer lifetime. The formula:
A ratio of 1/12 means the company recovers CAC in twelve months (assuming zero churn, zero cost to serve). Higher is better. The metric matters because it exposes pricing and packaging decisions: two companies with identical net magic numbers can have very different MRR efficiency if one is winning customers at higher ACV.
The 2026 environment favours companies that have pushed pricing and moved upmarket. MRR efficiency of 1/12 to 1/9 (nine-to-twelve-month CAC payback on an MRR basis) is competitive; below 1/18 (eighteen-month payback) is difficult to fund at Series B or later. The metric interacts directly with the Rule of 40 discussed in the Series B piece — the two together tell an investor whether growth is being purchased efficiently or at a premium.
Quality-of-Revenue: The Durability Test
Quality-of-revenue is not a single formula but a scoring framework that has become standard in Series B and later diligence. It asks four questions of the booked revenue base:
- Contract duration: What proportion of ARR is contracted (12+ months) versus month-to-month? Contracted ARR trades at a premium in valuation because it is defensible.
- Auto-renewal terms: Are contracts auto-renewing (defaults to renew unless customer opts out) or opt-in (customer must actively renew)? Auto-renewal is materially more valuable to a buyer.
- Concentration: What proportion of ARR comes from the top ten customers? Anything above 40 per cent is a concentration risk that suppresses valuation.
- Segment mix: How much of ARR is from SME (higher churn, faster to close) versus mid-market or enterprise (lower churn, slower to close)? Mix affects the risk profile of the ARR stack.
The scoring framework produces a composite quality-of-revenue score, typically presented on a 1-to-5 scale, with each of the four dimensions rated. A composite score above 4.0 is Series B-ready; below 3.0 will drag valuation regardless of headline growth or efficiency.
"Burn multiple tells you how much cash the whole company is consuming per pound of revenue growth. It does not tell you which lever — GTM, pricing, product — is driving that efficiency, or whether the revenue you are booking will still be there in eighteen months. The three metrics that have replaced it in 2026 answer those questions."
Reporting Cadence and Board Presentation
The four metrics — burn multiple, net magic number, MRR efficiency, quality-of-revenue score — should appear on the monthly finance dashboard, with the trend line over the past six quarters. This gives the board and investors the movement rather than a snapshot, which is the more useful signal.
The board pack template for the four metrics:
The single-page presentation of these four metrics, plus the trend, plus a one-line commentary under each, gives the board the substance of a fifteen-slide efficiency review in a page they will actually read.
Key Takeaways
- Burn multiple remains useful as an aggregate efficiency metric, but 2026 investors are asking three additional questions it does not answer.
- Net magic number isolates GTM efficiency: annualised net new ARR divided by prior-period sales and marketing spend. Efficient range is 1.0 to 1.5.
- MRR efficiency measures pricing and packaging: new MRR added per pound of CAC. Target is 1/12 or better (twelve-month payback on an MRR basis).
- Quality-of-revenue is a scoring framework across contract duration, auto-renewal terms, customer concentration, and segment mix. Composite above 4.0 is Series B-ready.
- Definitions matter more than the formulas. Publish your definitions in the metrics appendix of the board pack; investors will check for consistency across periods.
- Report the four metrics as a single page with six quarters of trend. The consistency of the historic series is what investors trust, more than the specific level at any single point.
- Instrument these metrics before you need them. Investors treat metrics produced ad hoc for diligence with more suspicion than metrics produced from a standing reporting cadence.