Formula
How to Calculate Burn Rate
The rate at which a company spends its cash reserves, typically expressed as a monthly figure. Gross burn is total monthly cash outflow; net burn subtracts revenue collected.
Monthly Burn Rate
Burn Rate = (Starting Cash - Ending Cash) / Number of Months
Where
- Starting Cash
- = Cash balance at period start
- Ending Cash
- = Cash balance at period end
What Is Burn Rate?
Burn rate is the rate at which a startup consumes its cash, usually measured monthly. There are two types: Gross Burn: Total monthly cash outflows (salaries, rent, infrastructure, marketing, etc.) — regardless of revenue. Net Burn: Gross burn minus cash collected from customers. This is the actual depletion of cash reserves each month. Net burn is the more meaningful metric for managing runway. A company burning $400K gross with $150K in monthly collections has a $250K net burn and $250K/month cash depletion. Burn rate changes with hiring, revenue growth, and cost structure decisions. Founders must update their burn projections regularly.
Worked Example
A startup has monthly expenses: $180K in salaries, $20K in infrastructure, $30K in marketing, $20K in other costs — $250K gross burn. Monthly revenue collected: $80K. Net burn = $250K - $80K = $170K. With $2.5M in the bank: runway = $2.5M / $170K = 14.7 months. If the team grows and gross burn rises to $350K while revenue grows to $120K, net burn = $230K and runway shrinks to 10.9 months.
Why Burn Rate Matters
Burn rate is the operational dial founders have the most control over. Reducing burn extends runway, reduces fundraising pressure, and improves negotiating leverage with investors. But cutting burn too aggressively can kill growth momentum. The burn multiple — net burn divided by net new ARR — tells you how efficiently you're converting burn into revenue growth.
Related Terms
Frequently Asked Questions
How do you calculate Burn Rate?
Burn Rate is calculated using the formula: Burn Rate = (Starting Cash - Ending Cash) / Number of Months. The rate at which a company spends its cash reserves, typically expressed as a monthly figure. Gross burn is total monthly cash outflow; net burn subtracts revenue collected.
What is a good Burn Rate?
What constitutes a "good" Burn Rate depends on context — the fund's stage, vintage year, and strategy. Check our benchmarks and calculators for specific ranges.