How to Calculate Your Startup's Burn Rate (And Why It Matters)
Burn rate is one of the most important metrics a founder can track. Here's how to calculate it, interpret it, and use it to make better decisions.
Burn rate is the speed at which your company is spending its cash reserves. It's one of the first numbers investors ask about — and one of the easiest to misunderstand.
Gross Burn vs Net Burn
Gross burn is your total monthly operating expenses. Net burn is gross burn minus any revenue you're generating. If you're spending $80,000/month and bringing in $20,000, your net burn is $60,000.
Most investors care about net burn because it reflects the true cash drain on the business.
How to Calculate Runway
Once you have your net burn, calculating runway is straightforward: divide your current cash balance by your monthly net burn. If you have $600,000 in the bank and a $60,000 net burn, you have 10 months of runway.
The general rule of thumb is to always have at least 12–18 months of runway. Anything below 6 months puts you in a precarious position when fundraising.
Why Burn Rate Changes Over Time
Burn rate isn't static. As you hire, launch products, or run marketing campaigns, it shifts. Tracking it monthly gives you early warning signals before a crisis hits.
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