What is burn rate?
Burn rate is the speed at which a company is spending its cash reserves. It is the most fundamental financial survival metric for any pre-profitability startup: if you run out of cash, everything else is irrelevant. The calculator above computes net burn rate, which is the average monthly excess of cash outflows over cash inflows — in other words, how much your bank balance shrinks each month after accounting for all revenue received.
Two flavors of burn rate are commonly discussed. Gross burn is total monthly cash spent, regardless of revenue. Net burn is gross burn minus monthly revenue. Net burn is the more operationally meaningful number because it reflects the actual cash deficit you must fund. A company spending $200,000 per month with $150,000 in monthly revenue has a gross burn of $200,000 but a net burn of only $50,000. Investors almost always mean net burn when they ask “what’s your burn?”
Burn rate is closely related to two other critical metrics: runway (how many months of cash remain at the current burn rate) and CAC payback period (which determines how quickly acquired customers begin reducing net burn). A high burn rate is not automatically bad — a company investing heavily in a proven growth channel may burn $500,000 per month and be on an excellent trajectory. Context is everything: burn rate is only meaningful relative to the growth and efficiency it is buying.
The formula
Net Burn Rate = (Cash at Start of Period − Cash at End of Period) / Number of Months- Cash at start of period — the cash and cash-equivalents balance at the beginning of the measurement window. Use the actual bank balance, not accounts receivable or other liquid assets unless they are immediately accessible.
- Cash at end of period — the balance at the end of the same window. If end cash exceeds start cash, the result is negative, indicating the company is cash-flow positive (net cash generation rather than burn).
- Number of months — the length of the measurement window. Three months is the most common window because it smooths seasonal variance while remaining responsive to recent changes. Single-month calculations are noisy; 12-month averages can obscure a deteriorating trend.
What to include in cash: Operating cash only. Do not include restricted cash, debt facilities, or capital raised during the period in the cash balance. If you raised a $2M Series A in the middle of the measurement period, subtract that from the ending cash before calculating burn to avoid artificially deflating the result.
Edge case: A measurement window of zero months produces an undefined result (division by zero). The calculator displays ”—” in this case.
Worked example
Default inputs: Cash at start = $500,000, Cash at end = $350,000, Months = 3.
($500,000 − $350,000) / 3 = $150,000 / 3 = $50,000 per monthAt $50,000 per month net burn, the company is consuming $50,000 of cash reserves each month after revenue. With $350,000 remaining at the end of the period, the current runway is $350,000 / $50,000 = 7 months (see the Runway calculator for this calculation).
What changes if the team hires two senior engineers at a total loaded cost of $30,000 per month? Burn rises to $80,000 per month. With the same $350,000 ending balance, runway compresses to 4.4 months — a meaningful shift that changes the urgency of the next fundraising process. Alternatively, if the same period sees a large customer sign a $60,000 annual contract paid upfront, the ending cash balance rises by $60,000 to $410,000. Because this calculator measures net burn as (startCash − endCash) / months, that $60,000 cash inflow is captured in the ending balance, and the calculated monthly burn drops to ($500,000 − $410,000) / 3 = $30,000. This reflects the real economic benefit: cash received — whether from revenue or financing — directly reduces your net burn figure and extends runway.
Benchmarks
Burn rate benchmarks depend heavily on stage, team size, and business model:
- Pre-seed / solo founder: $10,000–$30,000 per month is typical. Most of this is founder salary and infrastructure.
- Seed stage (5–10 people): $50,000–$150,000 per month. Product and early go-to-market investment begins here.
- Series A (15–30 people): $150,000–$500,000 per month. Sales team, marketing, and expanded engineering headcount drive burn.
- Series B+: $500,000–$2,000,000+ per month. Companies at this stage are investing heavily in sales capacity and market expansion.
The more important benchmark is not the absolute burn level but the burn multiple: net burn in a given period divided by net new ARR added in the same period. A burn multiple of 1.0x means you are spending $1 of cash to generate $1 of new ARR — considered reasonable. Below 1.0x is excellent (you’re building ARR efficiently). Above 2.0x is a concern. Above 3.0x signals significant capital inefficiency at growth stage.
How to interpret and improve it
Burn rate is a lagging indicator — it reflects decisions made weeks or months ago. The most impactful levers are headcount (typically 60–80% of burn for software companies), paid acquisition spend, and infrastructure costs. Headcount decisions take the longest to implement but have the largest effect; paid channels can be dialed up or down immediately.
When burn rises, the first question to ask is whether it is rising because of deliberate investment (hiring a sales team, launching a new channel) or because of inefficiency (rising per-unit costs without corresponding revenue growth). The former is acceptable if growth validates the investment; the latter requires immediate diagnosis.
Common mistakes: Measuring burn over a single month introduces noise from irregular timing of large invoices, payroll cycles, or annual software renewals. Always use at least a three-month average for operational decisions. Also, be careful to separate capital raises from the burn calculation — received funding is not revenue and should not be used to deflate the apparent burn rate.
When the metric misleads: A negative burn rate (the company is cash-flow positive) does not necessarily mean the business is healthy. It could reflect deferred revenue from annual contracts that will be earned over 12 months, or aggressive collection of receivables that pulls cash forward. True profitability is measured by GAAP net income or free cash flow, not by changes in the bank balance.
Frequently asked questions
What is net burn rate? Net burn rate is the average amount of cash your company spends in excess of revenue each month.
How is burn rate calculated? Subtract ending cash from starting cash and divide by the number of months in the period.