How to Calculate Your Business Burn Rate (With Formula)
Burn rate tells you how fast your business is spending cash. Whether you are a startup or an established business investing in growth, understanding burn rate is essential for survival.
What Is Burn Rate?
Burn rate measures how quickly a business spends its cash reserves. Originally a startup metric, burn rate is valuable for any business going through a period where expenses exceed revenue, including growth phases, seasonal lulls, or market downturns.
Two Types of Burn Rate
Gross Burn Rate
Your total monthly cash spending, regardless of income.
Formula: Total Monthly Cash Expenses = Gross Burn Rate
Example: If your business spends $45,000 per month on payroll, rent, marketing, and other costs, your gross burn rate is $45,000/month.
Net Burn Rate
Your monthly cash loss after accounting for revenue.
Formula: Monthly Cash Expenses - Monthly Cash Revenue = Net Burn Rate
Example: You spend $45,000 and earn $30,000. Your net burn rate is $15,000/month.
| Metric | Formula | Example |
|---|---|---|
| Gross Burn Rate | Total monthly expenses | $45,000/month |
| Net Burn Rate | Monthly expenses - Monthly revenue | $15,000/month |
| Runway (months) | Cash reserves / Net burn rate | $120,000 / $15,000 = 8 months |
How to Calculate Your Runway
Runway tells you how many months your business can survive at the current burn rate before running out of cash.
Runway = Total Cash Reserves / Net Monthly Burn Rate
If you have $120,000 in the bank and burn $15,000 net per month, you have 8 months of runway.
What Is a Healthy Runway?
- Pre-revenue startup: 12-18 months minimum.
- Early-stage business with some revenue: 6-12 months.
- Established business in growth mode: 3-6 months at current investment level.
- Profitable business: Burn rate should be zero or negative (meaning you are cash-flow positive).
How to Reduce Burn Rate
Quick Wins
- Audit subscriptions and cancel unused software.
- Renegotiate vendor contracts and payment terms.
- Shift from full-time hires to contractors for non-core functions.
- Reduce office space or move to remote/hybrid work.
Strategic Reductions
- Focus marketing spend on the highest-ROI channels and cut the rest.
- Delay product features that do not directly drive revenue.
- Consolidate tools and platforms to reduce redundancy.
Tracking Burn Rate Over Time
Calculate and record your burn rate monthly. Plot it on a chart alongside revenue growth. Healthy businesses show a declining net burn rate as revenue grows toward profitability, even if gross burn increases.
Use the break-even calculator to see when revenue will exceed expenses and the profit margin calculator to optimize your unit economics. For foundational tracking, see our guide on 10 financial KPIs every small business should track.
Ready to put this into practice?
Finntree's AI CFO analyzes your finances using strategies from hundreds of top CFOs.
Start Your Free Trial