The main startup efficiency ratios are burn multiple (net burn divided by net new ARR), magic number (net new ARR over prior-period sales and marketing spend), the Rule of 40 (growth rate plus profit margin), LTV to CAC, and CAC payback in months.
The five ratios and their formulas
Burn multiple = net burn / net new ARR. How many dollars you consumed to add a dollar of recurring revenue. Lower is better, and it is the bluntest capital efficiency measure there is because it makes no allowance for where the money went.
Magic number = net new ARR in the period / sales and marketing spend in the prior period. The same question aimed specifically at the go-to-market engine, lagged by a period because spend takes time to convert. Higher is better.
Rule of 40 = revenue growth rate % + profit margin %. The rule is that the two together should reach at least 40, which is simply what the rule says rather than an empirical finding. It exists to stop a business claiming credit for growth it bought at any price, or for profitability it achieved by stopping growth.
LTV to CAC = customer lifetime value / customer acquisition cost. Whether a customer is worth more than it cost to win them. The commonly repeated target is three to one, and it is worth knowing that the ratio is only as honest as the churn and margin assumptions inside the LTV.
CAC payback (months) = CAC / (new monthly recurring revenue x gross margin %). How many months of gross profit it takes to earn back the cost of winning a customer. This is the one that connects directly to runway, because a long payback period means you are funding growth out of the bank balance for longer.
| The formula | What it is actually testing | |
|---|---|---|
| Burn multiple | Net burn / net new ARR | Whether the business converts capital into recurring revenue at all. It is deliberately unforgiving and makes no allowance for what the money was spent on. |
| Magic number | Net new ARR / prior-period sales and marketing spend | Whether the go-to-market engine specifically is working. Lagging the spend by a period is the point; removing the lag flatters a business that just increased spend. |
| Rule of 40 | Revenue growth rate % + profit margin % | Whether growth and profitability are being traded off deliberately rather than accidentally. It catches both growth at any cost and profitability bought by stalling. |
| LTV to CAC | Customer lifetime value / customer acquisition cost | Whether the unit economics hold. Almost every argument about this ratio is really an argument about the churn and gross margin assumptions inside LTV. |
| CAC payback | CAC / (new monthly recurring revenue x gross margin %) | How long the balance sheet funds each new customer before they pay for themselves. This is the ratio that connects go-to-market directly to runway. |
The data these ratios need before they mean anything
Every one of them depends on inputs that are easy to define loosely and hard to define consistently. Net new ARR needs a settled rule on upgrades, downgrades and churn. CAC needs a settled rule on whether salaries, tooling and agency fees sit inside sales and marketing spend. Gross margin needs a settled cost of sales, which in a software business means an actual decision about hosting, support and customer success. None of the five is defined by an accounting standard. Revenue is measured under the AASB accounting standards, but ARR, CAC and net burn are management constructs, so the only authority behind them is whatever your own finance function wrote down and stuck to.
A classic problem for rapidly scaling businesses is that the finance function gets left behind and never develops the maturity and controls the growth rate demands.[1] Efficiency ratios are where that shows up first, because they combine finance data with go-to-market data and nothing reconciles. If your burn multiple changes depending on who calculated it, you do not have a ratio problem. You have a definitions problem, and definitions are owned by finance.
On benchmarks
Published benchmark tables exist for all five ratios and they are worth reading with care. They are drawn largely from US datasets, at particular funding vintages, from companies that chose to report. An Australian company at seed with a six-figure ARR base and a company at Series C are not measured usefully by the same threshold, and neither is a product-led business against an enterprise sales motion.
The more useful discipline is internal. Track your own ratios by quarter, decide in advance what a bad trend would look like, and say out loud what you will change if you see it. An investor asking about burn multiple is usually testing whether you know your own number and can explain the direction of travel, not whether you cleared a published bar.
Every one of these ratios has burn on one side of it, so the place to start is calculating gross burn, net burn and runway properly.
Who owns efficiency in a growing Australian company
Efficiency is the number one priority I see CFOs carrying. Businesses are focused on cost control to drive profitability without adding unnecessary risk, which is the pattern the December 2024 Deloitte CFO Sentiment Report also picked up.[2] That framing matters, because efficiency work done badly is just cuts, and cuts made without a view of which spend was converting are how a company damages the growth side of the ratio while improving the burn side.
There is an uncomfortable version of this that applies to the finance hire itself. Cost pressure frequently limits hiring into finance roles even where the business case for the hire is clear.[3] The finance function is usually the last one allowed to add a head, and it is also the function that has to prove every other head is worth it.
When you do hire, the market prices this fairly sharply. In the Australian market a half-decent finance hire who can add value beyond compliance might cost $150,000 to $160,000, while someone with strong experience across automation, tech, AI, capital raises and acquisitions is closer to $200,000 and up.[4] The band-by-band version, by role and funding stage, is in our 2026 salary guide. The gap between those two numbers is roughly the gap between a person who can report your efficiency ratios and a person who can move them.
If the ratios are now a board-level conversation rather than a reporting one, the question becomes when to hire your first CFO.
Common questions
What are startup efficiency ratios?
They are measures of how much growth a business gets for the capital it consumes. The five most often asked for are burn multiple, magic number, the Rule of 40, LTV to CAC and CAC payback. Each combines a finance input with a go-to-market input, which is why they are more sensitive to inconsistent definitions than standard accounting ratios.
How do you calculate burn multiple?
Burn multiple is net burn divided by net new ARR for the same period, and lower is better. It tells you how many dollars of cash the business consumed to add one dollar of recurring revenue. The figure is only comparable period to period if net new ARR is calculated the same way each time, which means a settled rule for upgrades, downgrades and churn.
What is the Rule of 40?
The Rule of 40 says revenue growth rate plus profit margin should total at least 40. That threshold is the rule itself rather than an empirical finding. Its use is to force an explicit trade-off: a business growing quickly is allowed to be unprofitable, and a business that has slowed is expected to show margin, but doing neither is the signal.
Are there reliable benchmarks for these ratios?
Benchmark tables exist but should be handled carefully. Most are drawn from US datasets at particular funding vintages, from companies that chose to report, and they do not distinguish a product-led business from an enterprise sales motion. Track your own ratios by quarter, decide in advance what a bad trend looks like, and be able to explain the direction of travel. That is usually what an investor is actually testing.
References
- My position on it: a classic problem is the finance function getting left behind, failing to develop the maturity and controls required for accelerated growth.
- How I frame this, from interviewing Australian CFOs on The CFO Track: efficiency is the number one priority, with businesses focusing on cost control to drive profitability without adding unnecessary risk, as reflected in the December 2024 Deloitte CFO Sentiment Report.
- A pattern I see repeatedly: cost pressures frequently limit hiring for finance roles, even when the business case for the new hire is clear.
- What I see the market paying: a half-decent finance hire who can add value beyond compliance might cost $150,000 to $160,000, while a hire with strong experience in automation, tech, AI, capital raises and acquisitions will be closer to $200,000 and above.