Burn Multiple vs Rule of 40 Comparison
Burn Multiple (cash burned / net new ARR) became the dominant SaaS efficiency metric post-2022 as growth-at-all-costs died. Rule of 40 (growth + margin) remained important for late-stage. In 2026, top quartile public SaaS shows Burn Multiple < 1.0 AND Rule of 40 > 40%. Companies failing either struggle to raise.
Why Burn Multiple Replaced LTV/CAC
Pre-2022 SaaS efficiency was measured via LTV/CAC and CAC Payback. Problem: both ignore overhead spending (G&A, R&D, finance/HR). Burn Multiple captures ALL cash burned vs ARR added — single metric for total efficiency. Public SaaS slide deck staples 2023-2026. Median: 1.5x. Top quartile: <1.0. Elite: <0.5.
Rule of 40 Refresher
Public SaaS Rule of 40: growth rate + FCF margin should sum to 40%+. Examples: 30% growth + 10% margin = 40 ✓. 60% growth + (-20%) margin = 40 ✓. 20% growth + 5% margin = 25 ✗. Originally proposed by Brad Feld (Foundry Group). Adopted by IPO bankers as headline efficiency metric for late-stage SaaS.
When Each Metric Wins
Burn Multiple matters most for: Series B-D companies still burning cash, deciding next-round size. Rule of 40 matters most for: late-stage growth equity, pre-IPO, public SaaS valuation. They're complementary — a company can have great Burn Multiple but weak Rule of 40 (paying for growth efficiently but slowly). Best practice in board reports: show both alongside Magic Number and NDR.
Source: Bessemer State of the Cloud 2025, OpenView SaaS Benchmarks 2025, Foundry Group Rule of 40. Last updated: May 2026.