Burn Rate
Burn rate is the monthly rate at which a startup spends cash. It determines how much runway remains before the company must raise more money or turn profitable.
What Is Burn Rate?
Burn rate is the rate at which a company spends cash before it generates positive cash flow. It’s expressed as a monthly figure and is one of the most critical metrics any startup founder must track.
There are two types:
- Gross Burn: Total monthly operating expenses (salaries, rent, cloud costs, etc.)
- Net Burn: Gross burn minus any monthly revenue
Net Burn Rate = Gross Expenses − Monthly Revenue
Why It Matters
Burn rate answers the most existential question for any pre-profitability startup: how long until we run out of money? Paired with your cash balance, it gives you your runway - the number of months you can operate before needing more funding.
Investors look at burn rate to assess:
- Capital efficiency (are you getting results for what you spend?)
- Growth trajectory relative to spending
- Team discipline and unit economics awareness
Example
| Month | Cash Balance | Monthly Expenses | Revenue | Net Burn |
|---|---|---|---|---|
| Jan | $500,000 | $80,000 | $10,000 | $70,000 |
| Feb | $430,000 | $85,000 | $15,000 | $70,000 |
| Mar | $360,000 | $90,000 | $20,000 | $70,000 |
At $70k net burn, this company has roughly 5 months of runway ($360k ÷ $70k).
What’s a “Good” Burn Rate?
There’s no universal answer - it depends on stage, sector, and growth rate. General benchmarks:
| Stage | Typical Monthly Burn |
|---|---|
| Pre-seed | $10k–$30k |
| Seed | $50k–$150k |
| Series A | $200k–$600k |
| Series B+ | $1M+ |
The key question is not the absolute number but the burn multiple: how much cash are you burning for every dollar of net new ARR? Below 1.5x is healthy; above 2x warrants review.
Controlling Burn Rate
- Delay hiring until roles are truly needed
- Negotiate annual contracts for SaaS tools (often 20–30% cheaper)
- Use variable costs before fixed where possible
- Set burn targets as part of budget planning each quarter
Key Takeaway
Know your burn rate cold. Founders who don’t know their monthly spend to the dollar are flying blind. Your burn rate, combined with your current cash, tells you when you need to either raise your next round or reach profitability - and that timeline should always be top of mind.
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