What does a rupee of new revenue cost you?

The figures the calculator opens with, over one quarter. Every number is invented.

Both multiples describe the same quarter. The company would probably report 1.29 in a deck. An investor rebuilding it from the subscription data will get 1.94, and the difference is that a third of everything the sales team won was replacing customers who left.

The useful question that follows is not how to spend less. It is what those eight lakh of churn cost to win in the first place, and whether the money spent replacing them would have been better spent keeping them.

Run the same quarter with churn halved, to ₹4 lakh, and net new ARR becomes ₹20 lakh, which takes the multiple from 1.94 to about 1.55 with no change to spending at all. That is the arithmetic case for treating retention as a growth investment rather than a support function.

Under 1

Each rupee of net new recurring revenue cost less than a rupee of cash. Efficient by any common standard. Worth checking whether it holds as spending scales, because the first customers are usually the cheapest.

1 to 2

The range most investors treat as reasonable for a company still investing in growth. The direction across four quarters matters more than the level.

2 to 3

Expensive. Expect questions about what the money is buying, and look at churn before acquisition cost, because retention is usually the cheaper fix.

Above 3

Growth is consuming a lot of cash. Survivable with a strong balance sheet and an obvious path to improvement, uncomfortable without either, and hard to raise against in a cautious market.

No net new revenue

If churn took more than new business added, the multiple is not meaningful. Whatever is being spent on growth is currently buying replacement, which is the first thing to fix.

Treat those bands as conversation starters rather than grades. A company in its first year of selling, or one that just made a large investment in a new market, will look worse than it is. A company that has been at 2.5 for six quarters usually is.

For several years, Indian growth capital was priced mainly on growth. That changed. Funds now ask about efficiency earlier, partly because exits took longer than expected and partly because the companies that struggled were rarely the slow ones, they were the expensive ones.

What a fund is really testing with this number is whether more money would buy proportionally more revenue. A company at 1.2 is making a straightforward case: give us capital and the ratio suggests what it produces. A company at 3 is asking an investor to believe that something will change after the cheque clears.

There is a second reading too, about control. A high multiple with high churn suggests the company does not yet know why customers leave. A high multiple with excellent retention usually means a deliberate investment, and that is a conversation rather than a concern, provided the founder names it as a choice.

1. 01Use a quarter, not a month. Single months are too noisy, particularly where deals close at quarter end.
2. 02Net burn means cash out less cash in from customers. Money raised from investors is not revenue and does not belong anywhere in this calculation.
3. 03New ARR counts subscriptions that actually went live, not contracts signed and waiting to start.
4. 04Expansion counts upgrades and added seats from existing customers, not one-off services or implementation fees.
5. 05Churn and contraction go in as a positive number: cancellations plus downgrades, at their annualised value.
6. 06Keep the definitions written down. The multiple only means something across quarters if it was calculated the same way each time.

If your business is not subscription based, the measure still works with annualised recurring revenue replaced by whatever recurs in your model: retainers, contracted volumes, or subscriptions to a service. It does not work with one-off project revenue, because there is nothing recurring to divide into.

1. 01Split new business from replacement. If more than a quarter of gross new ARR is going to replace churn, retention is the project, not acquisition.
2. 02Split acquisition cost by channel. A blended figure hides the channel that is dragging the average, and moving budget is faster than cutting it.
3. 03Look at the shape of the cost base. Burn that is mostly delivery cost points at margin; burn that is mostly sales points at efficiency; burn that is mostly engineering points at a bet whose payback sits further out.
4. 04Check pricing before cutting spending. A few points of contribution margin improves this ratio without slowing growth at all.
5. 05Then, if it is still high, decide deliberately: continue and fund it, or slow growth and improve the ratio. Both are legitimate. Drifting is not.

Burn multiple is the company-level measure. Two others sit underneath it, and they answer different questions.

CAC payback

Per customer, and mostly about sales and marketing. It tells you how long each new customer takes to repay what it cost to win them, which drives how fast you can afford to grow.

Contribution margin

Per unit of revenue, and mostly about pricing and delivery. It sets the ceiling on everything else: a thin contribution margin makes every other ratio harder to fix.

Burn multiple

The whole company, including product, support, overheads and the bets that have not paid back yet. It is the only one of the three a founder cannot improve by redefining a metric.

Read together they usually point at the same cause from three directions. A company with good payback, good margin and a poor burn multiple is spending heavily somewhere outside sales, which is often a product bet worth naming explicitly rather than leaving buried in the burn.