Burn Rate

What Is Burn Rate?

Burn rate measures how quickly a company uses up its available cash. There are two types: gross burn rate (total monthly cash spending) and net burn rate (total spending minus any incoming revenue). For early-stage companies that rely on funding rather than revenue, this metric is a survival indicator.

For example, if your startup has $300,000 in the bank and spends $30,000 per month with $5,000 in monthly revenue, your net burn rate is $25,000. That gives you 12 months of runway before the money runs out.

Why It Matters for Your Business

Burn rate is one of the most important metrics for any business that is not yet cash-flow positive. It directly answers the question: how long can we keep going?

• Runway planning: Dividing your cash reserves by your net burn rate tells you exactly how many months you have left to reach profitability or raise additional funding.
• Fundraising timing: Investors expect you to know your burn rate. Starting fundraising six to nine months before your runway ends is a common rule of thumb.
• Spending discipline: Tracking burn rate forces you to evaluate every expense and ask whether it contributes to growth or survival.

Reducing burn rate does not always mean cutting costs. Sometimes increasing revenue through pricing changes or faster sales cycles is the smarter path to extending your runway.