What Is Burn Rate?
Burn rate is the speed at which a company spends its cash reserves. It is the single most important metric for any startup that has not yet reached profitability because it determines how long the company can survive before running out of money.
There are two versions of burn rate:
- Gross burn rate = total monthly cash outflow (all operating expenses)
- Net burn rate = monthly expenses minus monthly revenue
From burn rate, you derive runway: the number of months until cash hits zero. The formula is: Runway (months) = Cash Balance / Monthly Burn Rate
A Series A startup with $5M in the bank, $400K in monthly expenses, and $120K in monthly revenue has a gross burn of $400K, a net burn of $280K, and a net runway of 17.9 months.
Burn Rate Benchmarks by Stage
Burn rate scales with company stage. A pre-seed company with two founders should not be spending at the same rate as a 50-person Series B company. The table below shows typical monthly burn rates and target runway by funding stage.
| Stage | Typical Monthly Burn | Typical Raise | Target Runway |
|---|---|---|---|
| Pre-Seed | $20K - $50K | $250K - $1M | 12 - 18 months |
| Seed | $50K - $150K | $1M - $4M | 18 - 24 months |
| Series A | $150K - $500K | $5M - $20M | 18 - 24 months |
| Series B | $500K - $1.5M | $15M - $50M | 18 - 30 months |
| Series C+ | $1M - $5M+ | $30M - $100M+ | 24+ months |
Source: These ranges are compiled from CB Insights, Carta, and publicly available startup fundraising data. Actual figures vary significantly by industry, geography, and business model.
How to Calculate Burn Rate
The burn rate calculation is straightforward. You need three numbers from your accounting: cash balance, monthly expenses, and monthly revenue.
Gross Burn Rate = Total Monthly Operating Expenses
Net Burn Rate = Monthly Expenses - Monthly Revenue
Runway (months) = Cash Balance / Burn Rate
Worked example (Gross Burn): A seed-stage SaaS startup has $1.8M in the bank after their raise. Their monthly expenses total $120K (payroll $85K, cloud infrastructure $15K, office and tools $12K, marketing $8K).
- Gross Burn Rate = $120,000/month
- Runway = $1,800,000 / $120,000 = 15 months
Worked example (Net Burn): The same startup generates $35K in monthly revenue from early customers.
- Net Burn Rate = $120,000 - $35,000 = $85,000/month
- Net Runway = $1,800,000 / $85,000 = 21.2 months
The 6-month difference between gross and net runway shows why revenue matters even at early stages. Every dollar of revenue directly extends your time to hit the next milestone.
Gross Burn vs Net Burn
Both metrics serve different purposes. Use each one in the right context.
Gross burn rate is your total monthly spend regardless of revenue. It answers: "How much does it cost to run this company for one month?" Use it for worst-case planning, budgeting, and understanding your full cost structure. If revenue dropped to zero tomorrow, gross burn tells you how long you would survive.
Net burn rate is your monthly cash drain after accounting for revenue. It answers: "How fast is our bank account actually shrinking?" Use it for runway projections, board updates, and fundraising timelines. Net burn gives the realistic picture of how long your cash will last.
| Scenario | Use Gross Burn | Use Net Burn |
|---|---|---|
| Board reporting | Show full cost structure | Show realistic runway |
| Fundraising pitch | Show how capital will be deployed | Show improving efficiency |
| Worst-case planning | Yes, primary metric | Secondary |
| Operational planning | Budget allocation | Hiring and growth decisions |
| Revenue is unpredictable | Safer to use gross | May overstate runway |
Smart founders track both. If your net burn is trending toward zero (or negative), you are approaching profitability. If your gross burn is climbing faster than revenue, you have a spending problem regardless of what net burn says.
Why Burn Rate Matters
Fundraising timing. VCs expect startups to begin fundraising with at least 9-12 months of runway remaining. The fundraising process typically takes 3-6 months. If you wait until you have 6 months of runway, you are negotiating from desperation, which leads to worse terms or failure to close.
Hiring decisions. Every new hire increases your burn rate by their fully loaded cost (salary + benefits + equipment + office space). A $120K engineer costs roughly $150K-$170K fully loaded. Before approving a hire, calculate how it changes your runway and whether the expected revenue impact justifies the shorter timeline.
Investor confidence. Investors evaluate burn rate relative to progress. A startup burning $300K/month with 40% month-over-month revenue growth tells a different story than one burning $300K/month with flat revenue. The burn rate itself is not good or bad. What matters is the return on that spend.
Survival. According to CB Insights, 38% of startups fail because they run out of cash or fail to raise new capital. Monitoring burn rate and runway is the most direct way to avoid this outcome. Companies that track these metrics monthly catch problems early enough to course-correct.
How to Extend Runway
When runway gets uncomfortably short, you have two levers: increase revenue or decrease expenses. Here are the most effective tactics, ordered by speed of impact.
1. Audit SaaS subscriptions. Most startups accumulate unused or underused software tools. A 30-person company easily spends $5K-$15K/month on tools that fewer than 5 people use. Cancel or downgrade everything that is not directly tied to revenue or product delivery.
2. Freeze non-critical hiring. Delaying one engineering hire by 3 months saves $40K-$50K in fully loaded costs. Prioritize roles that directly drive revenue (sales, customer success) over support functions during a cash crunch.
3. Renegotiate cloud contracts. AWS, GCP, and Azure all offer startup credits and committed-use discounts. If you are spending $20K+/month on infrastructure, a committed-use agreement can cut costs by 20-40%. Reserved instances alone save most companies 30%.
4. Accelerate sales cycles. Offer annual prepayment discounts (10-20% off) to bring forward cash that would otherwise arrive over 12 months. A customer paying $48K upfront instead of $5K/month gives you immediate runway while only costing you 10-20% in total contract value.
5. Pursue bridge financing. If you are close to a milestone that would make a full raise viable, a convertible note or SAFE from existing investors can add 3-6 months of runway. This works best when you have a clear path to the next milestone and strong existing investor relationships.
6. Reduce office costs. Go fully remote or downsize to a smaller space. Office rent is typically the second or third largest expense after payroll. Subleasing unused space or switching to a coworking setup can save $5K-$30K/month depending on your location.
This calculator provides estimates for informational purposes only. It does not constitute financial advice. Burn rate projections assume constant monthly expenses and revenue, which rarely holds in practice. Actual runway depends on revenue fluctuations, unexpected costs, and payment timing. Consult a qualified financial advisor or accountant before making decisions based on these calculations.