Last updated: 2026-06-23

Burn rate, defined

Burn rate is the speed at which a company spends its cash reserves. For a startup operating at a loss, it is the single most important survival metric: it determines how long the business can run before it must raise more money or reach profitability. Burn rate is measured in cash per month, and it comes in two forms — gross burn and net burn — that answer different questions.

Gross burn and net burn

Gross burn is the total cash leaving the business each month, regardless of any revenue coming in. It equals monthly operating costs — salaries, rent, software, marketing, and every other cash expense:

Net burn subtracts revenue from operating costs. It is the cash the business actually consumes each month after sales are counted:

Consider a company spending $120,000 a month and collecting $40,000 in revenue. Its gross burn is $120,000 — the full cost of operating. Its net burn is $120,000 − $40,000 = $80,000, the amount by which the cash balance falls each month. Net burn is the figure that drives runway; gross burn shows what the cost base would be if revenue vanished.

Why net burn drives runway

Runway is how many months a company can keep operating before it runs out of cash. It is the cash balance divided by net burn:

A company with $800,000 in the bank and an $80,000 net burn has 800,000 / 80,000 = 10 months of runway. Because net burn already accounts for incoming revenue, it gives a more realistic runway than gross burn would. As revenue grows, net burn falls and runway extends, even when gross spending is flat.

Worked example: a seed-stage SaaS company

A seed-stage company has $1,500,000 in the bank. It spends $210,000 a month on payroll, infrastructure, and overhead, and collects $60,000 in monthly recurring revenue.

• Gross burn: $210,000
• Net burn: $210,000 − $60,000 = $150,000
• Runway: $1,500,000 / $150,000 = 10 months

If revenue grows to $110,000 a month while costs hold steady, net burn falls to $210,000 − $110,000 = $100,000, and runway on the remaining balance stretches accordingly. This is why early-stage companies watch the trend in net burn, not just its level — a falling net burn signals the business is approaching break-even.

When net burn turns negative

When revenue exceeds operating costs, net burn becomes negative. A negative net burn means the company is cash-flow positive: it generates cash rather than consuming it, and its cash balance grows each month. At that point runway is no longer a binding constraint at the current spending level. The calculator reports a negative net burn whenever revenue is greater than operating costs.

Reaching cash-flow positive does not necessarily mean the business is profitable on an accrual basis — depreciation, deferred revenue, and timing differences can separate cash flow from accounting profit. But for a startup managing a finite bank balance, crossing into negative net burn is a major milestone.

Managing burn rate

A high burn rate is not inherently bad; it is only a problem relative to cash on hand and the growth it produces. Burning aggressively to capture a market can be the right call when each dollar of spend returns proportional growth. The danger is high burn paired with flat revenue, which drains the balance without building value.

Common guidance is to maintain 12 to 18 months of runway, raising the next round well before cash runs low. To keep runway in that range, net burn should stay near the cash balance divided by the target number of months. When runway shortens, the levers are the same two terms in the formula: cut operating costs or grow revenue. Pair this calculator with the Startup Runway Calculator to translate a burn rate and cash balance into the number of months remaining.