Last updated: May 2026
Quick Answer
Burn rate is how fast your company spends cash. Gross burn is total monthly expenses. Net burn is expenses minus revenue. Cash runway is your cash balance divided by your net burn rate.
Key Takeaways
- ✓ Gross Burn Rate = Total monthly expenses
- ✓ Net Burn Rate = Total monthly expenses − Monthly revenue
- ✓ Cash Runway = Cash Balance ÷ Net Burn Rate
- ✓ A healthy runway is considered to be 12-18+ months
- ✓ If runway drops below 6 months, immediate cost-cutting or fundraising is required
What Is Burn Rate and Why Every Founder Must Track It
Burn rate is the speed at which your company consumes its cash reserves. For startups and early-stage businesses, it is arguably the most important metric to monitor — because when cash runs out, the business stops, regardless of how promising the product or how loyal the customers.
Understanding your burn rate gives you a clear picture of your financial runway: the number of months you can operate before needing to either raise more capital or reach profitability. This is critical information for fundraising timing, hiring decisions, and growth planning.
Gross Burn vs. Net Burn
Gross burn rate is simply your total monthly cash outflow — every dollar you spend on salaries, rent, software, marketing, and other expenses. It tells you the base cost of keeping the lights on.
Net burn rate is the real number investors and founders care about most: total expenses minus revenue. It shows how much cash you actually lose each month after accounting for any income the business generates. A company with $100,000 in monthly expenses and $40,000 in monthly revenue has a net burn of $60,000.
How to Extend Your Runway
- Reduce discretionary spending. Audit every subscription, tool, and vendor contract. Eliminate anything that doesn't directly contribute to growth or operations. SaaS tool sprawl alone can cost startups $5,000–$20,000/month in underused software.
- Accelerate revenue. Even modest monthly recurring revenue dramatically extends runway. A startup burning $50,000/month that generates $15,000 in new MRR reduces net burn by 30% — adding months without raising a penny.
- Negotiate deferred payments. Some vendors, landlords, and contractors will accept deferred payment schedules during lean periods — preserving cash without eliminating the expense.
- Raise before you need to. The worst time to fundraise is when you're desperate. Maintain enough runway to give yourself 6–9 months of fundraising time before hitting zero. Use the "Start Fundraising By" indicator above to plan ahead.
Typical Runway by Funding Stage
How much runway should you have? It depends on your stage and how much time you need to hit the milestones that justify your next raise.
| Stage | Recommended Runway | Why |
|---|---|---|
| Pre-Seed / Bootstrapped | 6–12 months | Enough to validate and reach seed traction metrics |
| Seed | 18–24 months | Time to hit Series A metrics (revenue, growth rate, retention) |
| Series A | 18–24 months | Enough to demonstrate scalable unit economics |
| Series B+ | 18–30 months | Larger rounds; investors expect longer planning horizons |
| Profitable SMB | 3–6 months operating reserve | Covers unexpected downturns without external financing |
Frequently Asked Questions
What is burn rate?
Burn rate is the rate at which a company spends its cash reserves. Gross burn is total monthly spending. Net burn is the difference between monthly spending and monthly revenue — the actual cash deficit per month.
What is cash runway?
Cash runway is how many months your business can operate before running out of cash, calculated as: Current Cash Balance ÷ Net Burn Rate. If you have $300,000 in cash and burn $30,000/month net, your runway is 10 months.
What is a healthy burn rate for a startup?
There is no universal answer — it depends on growth stage, revenue, and fundraising timeline. Most advisors recommend maintaining at least 12 months of runway at all times. If runway drops below 6 months, fundraising or cost reduction should begin immediately.
What is the difference between gross and net burn?
Gross burn is your total monthly cash outflows (all expenses). Net burn subtracts your monthly revenue from gross burn. Net burn represents the actual cash you lose each month. A company with $100,000 expenses and $70,000 revenue has a $30,000 net burn.
How can I reduce my burn rate?
Reduce burn by cutting non-essential spending, renegotiating vendor contracts, reducing headcount strategically, transitioning to variable cost structures, and accelerating revenue through pricing or sales efforts.