Formula
How to Calculate Burn Rate
Burn rate is how much cash a company consumes per month: gross burn is total outflows, net burn subtracts customer collections.
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?
Gross burn is total cash operating outflows in a month. Net burn is gross burn minus cash collected from customers, and it is the figure that determines how fast the bank balance falls and therefore how much runway remains. Neither equals net loss, because deferred revenue, receivables, stock-based compensation, and capitalized spend all separate accrual results from cash movement. The efficiency version of the measure is the burn multiple, net burn divided by net new ARR, introduced by David Sacks of Craft Ventures in 2020.
Worked Example
Suppose a company's monthly outflows are 420,000 dollars of payroll, 45,000 of contractors, 80,000 of cloud infrastructure, 95,000 of sales and marketing, 25,000 of software, 20,000 of facilities, and 15,000 of professional services: 700,000 dollars of gross burn. It collects 310,000 dollars, so net burn is 390,000 dollars. With 6,300,000 dollars in the bank, runway is 16.2 months. Over the quarter it added 1,100,000 dollars of new ARR and 240,000 of expansion and lost 190,000 to churn, so net new ARR is 1,150,000 against 1,170,000 dollars of quarterly net burn: a burn multiple of 1.02x. These figures are hypothetical.
Why Burn Rate Matters
Burn is the lever founders control most directly and the only one that can be moved within a month. The level alone says nothing, though. What investors, boards, and lenders read is how much growth the burn produced and whether it is trending with or against revenue. Reporting gross burn to one audience and net burn to another, or reporting either without a breakdown by category, is the fastest way to lose credibility on a figure nobody can independently check.
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. Burn rate is how much cash a company consumes per month: gross burn is total outflows, net burn subtracts customer collections.
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.