Growth efficiency: Rule of 40 and burn multiple

• Revenue growth % = (ARR now − ARR 12 months ago) ÷ ARR 12 months ago.
• Rule of 40 score = revenue growth % + profit margin %. A tech startup growing 60% with a −20% margin scores 40. So does one growing 20% at a 20% margin.
• Burn multiple = net burn ÷ net new ARR, both over the same 12 months. It shows how many pounds of cash you burned to add each £1 of ARR. Lower is better.
• If net burn is zero or negative, you are profitable or cash generative, so the burn multiple does not apply.
• If net new ARR is zero or negative while you are burning cash, the burn multiple cannot be calculated; growth is not covering the burn.

Net new ARR fills in from your two ARR figures. Change it if you track it differently, for example to strip out one-off or non-recurring revenue. Use the same margin definition each time you check (EBITDA margin and cash flow margin are both common).

Benchmarks: burn multiple bands follow David Sacks’ rule of thumb. The Rule of 40 is usually applied to software businesses past roughly £1m to £5m ARR; earlier on, growth rate tends to matter more. In this tool, 40 or more shows as strong, 20 to 40 as below the line, and under 20 as weak. Nothing you type leaves your browser.