Burn Rate

Burn rate is the speed at which a company — typically a pre-profitability startup — spends its cash reserves. It is the single most important metric for understanding how much time a company has left before it needs to become cash-flow positive or raise additional funding, commonly expressed as "runway" in months.

Burn rate matters because revenue growth alone doesn't guarantee survival — a company can be growing MRR rapidly while still burning cash faster than it's raising it, heading toward a cash crisis regardless of top-line momentum.

Gross Burn Rate = Total Monthly Operating Expenses

Net Burn Rate = Total Monthly Operating Expenses − Total Monthly Revenue

Runway (months) = Current Cash Balance / Net Burn Rate

Burn Multiple = Net Burn / Net New ARR Added (lower is more capital-efficient)

A startup's monthly financials:

Net Burn = $150,000 − $70,000 = $80,000/month

Runway = $1,200,000 / $80,000 = 15 months

If monthly expenses grow to $180,000 while revenue stays flat, net burn rises to $110,000/month and runway shrinks to roughly 10.9 months — a reminder that runway should be recalculated regularly, not treated as fixed.

Use the Burn Rate calculator to model your own runway under different expense and revenue scenarios.

• Runway shortens non-linearly with rising expenses: Because runway divides a fixed cash balance by a growing burn figure, even modest expense growth (e.g., from hiring) can meaningfully compress the number of months left — model runway under a "worst realistic case" expense scenario, not just the current run-rate.
• Burn rate and fundraising timing are tightly linked: Investors expect founders to start the next fundraise when 6-9 months of runway remain, not when the bank account is nearly empty — running low on cash dramatically weakens negotiating leverage and valuation.
• Burn multiple links spending efficiency to growth: Comparing net burn to net new ARR added reveals whether a company is buying growth efficiently or spending heavily for marginal revenue gains — a useful complement to burn rate alone, which says nothing about what the spending is producing.
• Burn rate differs fundamentally from accounting losses: A company can show a large net loss on its income statement (due to non-cash items like stock compensation or depreciation) while having a much smaller actual cash burn, or vice versa — always calculate burn from the cash flow statement or bank balance changes, not net income.
• Seasonal and lumpy expenses distort monthly burn: Annual insurance premiums, large one-time hires, or quarterly tax payments can spike burn in a single month — smoothing burn over a trailing 3-month average gives a more reliable runway estimate than any single month's figure.