The Burn Multiple: How Much Growth Costs (And When It's Worth It)

Most entrepreneurs think about growth in percentages. "We grew 50% this year!" But they rarely ask the more important question: How much did that growth cost?

The burn multiple answers this. It's simple math that separates smart growth from expensive growth.

What Is Burn Multiple?

Burn multiple = Cash spent ÷ New revenue gained

If you spend $100,000 and gain $50,000 in new annual revenue, your burn multiple is 2.0. You spent $2 for every $1 of new revenue.

Lower numbers are better. Higher numbers mean growth is getting expensive.

New Consultant Growth Investment

The Scenario: A startup consultant wants to grow from $200,000 to $400,000 in annual revenue.

Investment Required:

• Content creation and networking: $30,000

• CRM and business tools: $8,000

• Professional development: $12,000

• Marketing and events: $20,000

• Total investment: $70,000

Results:

• New annual revenue: $200,000

• Burn multiple: 0.35 ($70,000 ÷ $200,000)

This is excellent. Every $1 spent generated $2.86 in new revenue.

Established Consultant Growth Investment

The Scenario: An established consultant wants to grow from $500,000 to $800,000 in annual revenue.

Investment Required:

• Referral program incentives: $8,000

• Thought leadership content: $15,000

• Premium positioning (website, materials): $12,000

• Strategic partnerships: $10,000

• Total investment: $45,000

Results:

• New annual revenue: $300,000

• Burn multiple: 0.15 ($45,000 ÷ $300,000)

Even better. Every $1 spent generated $6.67 in new revenue.

Online Store Growth Investment

The Scenario: An e-commerce business wants to expand from $100,000 to $250,000 in monthly sales.

Inventory Expansion:

• New product line inventory: $90,000

• Expected monthly sales from new line: $150,000

• Inventory multiple: 0.6 ($90,000 ÷ $150,000)

Marketing Investment:

• Advertising for new products: $20,000

• Expected monthly sales boost: $150,000

• Marketing multiple: 0.13 ($20,000 ÷ $150,000)

Combined Investment:

• Total investment: $110,000

• New monthly revenue: $150,000

• Annualized new revenue: $1,800,000

• Overall burn multiple: 0.06 ($110,000 ÷ $1,800,000)

When Growth Gets Dangerous

Bad Burn Multiple Example:

• Consultant spends $80,000 on marketing

• Gains $40,000 in new revenue

• Burn multiple: 2.0

This consultant spent $2 for every $1 of new revenue. At this rate, growth will bankrupt them.

Warning Signs:

• Burn multiple above 1.5 = questionable efficiency

• Burn multiple above 2.0 = unsustainable

• Rising burn multiple = growth is getting more expensive

Why Established Businesses Grow More Efficiently

New Consultant Challenges:

• Must build awareness from zero

• No reputation or referrals

• Learning through trial and error

• Competing on price initially

Established Consultant Advantages:

• Referrals reduce acquisition costs

• Reputation commands premium pricing

• Proven systems and processes

• Word-of-mouth marketing

The Referral Effect: An established consultant's $300 acquisition cost (from The 3 Metrics That Predict Your Business Future) versus a new consultant's $1,200 shows why burn multiples improve over time.

How to Improve Your Burn Multiple

For New Consultants:

• Focus on networking over paid advertising

• Track which activities generate clients

• Identify your ICP (Ideal Customer Profile)

• Build case studies and testimonials quickly

• Price for value, not just to win business

For Established Consultants:

• Systematize referral generation

• Invest in thought leadership

• Raise prices regularly

• Focus on client retention

For E-commerce:

• Test small before scaling inventory

• Focus on profitable products first

• Optimize conversion before increasing traffic

• Track customer acquisition cost by channel

The Long-Term View

Growth efficiency improves over time if you're building the right foundation:

Year 1: High burn multiple (learning and building)

Year 2-3: Improving efficiency (systems and reputation)

Year 4+: Low burn multiple (leverage and referrals)

The key is ensuring your burn multiple is trending downward, not upward.

What This Means for You

• If your burn multiple is under 1.0: You're efficiently converting investment to growth. Scale up.

• If your burn multiple is 1.0-1.5: Decent efficiency, but look for optimization opportunities.

• If your burn multiple is above 1.5: Growth is getting expensive. Focus on efficiency before scaling.

The best entrepreneurs track burn multiple monthly. It's the difference between profitable growth and expensive hope.