Glossary/Burn Rate
Financial Metrics

Burn Rate

The rate at which a startup spends its cash reserves, typically measured monthly.

Full Definition

Burn rate is the rate at which a startup spends its cash reserves, typically expressed as a monthly figure. It's one of the most closely tracked metrics by both founders and investors because it determines how long a company can operate before needing additional funding.

Types of Burn Rate

  • Gross Burn Rate: Total monthly cash spending (all expenses)
  • Net Burn Rate: Monthly cash spending minus revenue (Gross Burn - Revenue)

Relationship to Runway

Runway = Cash in Bank ÷ Net Burn Rate

For example, a startup with $1.5M in the bank and a $100K monthly net burn rate has 15 months of runway.

Investor Expectations

Investors typically expect startups to have 18-24 months of runway after a funding round. A burn rate that's too high relative to growth signals inefficiency, while a burn rate that's too low might indicate under-investment in growth.

Burn Rate & Runway Calculator

Net Burn Rate:Monthly Expenses − Monthly Revenue
Runway (months):Cash in Bank ÷ Net Burn Rate
Example:$150K spend − $50K revenue = $100K burn → $1.5M ÷ $100K = 15 months

Real-World Example

A startup spends $200K/month on salaries, rent, and tools (gross burn) but earns $50K/month in revenue, making its net burn rate $150K/month.

Frequently Asked Questions

What is a good burn rate for a startup?
There's no universal 'good' burn rate — it depends on your stage and funding. The key metric is that your burn rate should give you 18-24 months of runway after raising. As a guideline, burn should be proportional to growth rate; spending $200K/month is fine if revenue is growing 20%+ monthly.
How do you calculate burn rate?
Gross burn rate = total monthly cash spending. Net burn rate = monthly spending minus monthly revenue. Example: If you spend $150K/month and earn $30K, your gross burn is $150K and net burn is $120K.
What is the difference between gross and net burn rate?
Gross burn rate is total monthly spending regardless of revenue. Net burn rate subtracts revenue from spending. Net burn is more meaningful because it shows how fast you're actually depleting cash. A company with $200K gross burn and $180K revenue has only $20K net burn.

Related Terms

Runway

The amount of time a startup can operate before running out of cash, given its current burn rate.

Cash Flow

The net movement of cash in and out of a business over a specific period.

Unit Economics

The direct revenues and costs associated with a single unit of a business model (typically per customer).

Revenue

The total income generated by a company from its business activities before any expenses are deducted.

Operating Expenses (OpEx)

The ongoing costs of running a business, including salaries, rent, marketing, and administrative costs.

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More Financial Metrics Terms

CAC (Customer Acquisition Cost)Net Revenue Retention (NRR)RunwayLTV (Customer Lifetime Value)MRR / ARR (Monthly & Annual Recurring Revenue)Operating Expenses (OpEx)
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