Calculate gross/net burn rate, runway, and project cash flow scenarios for your startup. Make informed decisions about hiring, spending, and fundraising timing.
MONTHLY EXPENSES
Formulas:
Gross Burn = Total Monthly Expenses
Net Burn = Expenses - Revenue
Runway = Cash / Net Burn Rate
Enter your cash balance and expenses
Add revenue to calculate net burn rate
Burn rate is one of the most critical metrics for venture-backed startups and any company operating before achieving profitability. It measures the speed at which a company consumes its cash reserves to fund operations, essentially answering the question: how quickly are we spending our money?
According to Y Combinator, understanding burn rate is fundamental to startup survival. The metric comes in two forms: gross burn rate (total monthly operating expenses) and net burn rate (expenses minus revenue). Most investors and founders focus on net burn rate because it reflects actual cash consumption after accounting for revenue generation.
The burn rate directly determines your runway, which tells you how many months your startup can survive before running out of cash. This calculation is essential for fundraising timing, hiring decisions, and strategic planning. A startup with $2 million in the bank and a $100,000 monthly net burn rate has 20 months of runway, giving founders a clear timeline for achieving milestones or raising additional capital.
Industry best practices from firms like Andreessen Horowitz and Sequoia Capital recommend maintaining 18-24 months of runway after each funding round. This provides adequate time to execute on milestones, weather unexpected challenges, and begin fundraising for the next round before cash becomes critical. Founders who wait until runway drops below 6 months often find themselves in difficult negotiating positions with investors.
Track your burn rate alongside your MRR (Monthly Recurring Revenue) to understand how quickly you're moving toward sustainability. The relationship between burn rate and revenue growth tells the story of your startup's capital efficiency, a key factor in how investors evaluate your business.
Gross Burn Rate = Total Monthly Operating Expenses
Net Burn Rate = Monthly Expenses - Monthly Revenue
Runway (months) = Current Cash Balance / Net Burn Rate
Add up all recurring monthly costs including:
The sum of all expenses from Step 1 equals your gross burn rate. This represents your total monthly cash outflow regardless of revenue. Gross burn is useful for understanding your cost structure and identifying areas for optimization.
Subtract your monthly revenue from gross burn to get net burn rate. If you're pre-revenue, net burn equals gross burn. As revenue grows, net burn decreases until you achieve profitability (net burn becomes negative, meaning cash positive).
Divide your current cash balance by net burn rate to determine runway in months. This tells you how long you can operate before running out of money. Use the runway calculator for detailed projections with different scenarios.
While burn rate and runway are closely related, they measure different aspects of your startup's financial health. Understanding both metrics and how they interact is essential for effective cash management and strategic planning.
The key insight is that runway depends on both your cash reserves and your burn rate. A startup with $500K in cash and $50K net burn has 10 months of runway, the same as a startup with $1M in cash and $100K net burn. This is why investors evaluate both metrics together when assessing a startup's financial position. Use a runway model to test different scenarios.
A B2B SaaS startup has raised $1.5M in seed funding. Monthly expenses: $80K (salaries), $5K (rent), $15K (marketing), $5K (software), $5K (other). Monthly revenue: $15K MRR.
Gross Burn = $110,000/month
Net Burn = $110,000 - $15,000 = $95,000/month
Runway = $1,500,000 / $95,000 = 15.8 months
With 15.8 months runway, this startup should begin Series A fundraising in 6-7 months to maintain negotiating leverage. Track MRR growth to show investors momentum.
A post-Series A startup has $5M in the bank. Monthly expenses: $200K (salaries), $20K (rent), $80K (marketing), $15K (software), $15K (other). Monthly revenue: $80K.
Gross Burn = $330,000/month
Net Burn = $330,000 - $80,000 = $250,000/month
Runway = $5,000,000 / $250,000 = 20 months
With 20 months runway, this company has flexibility to invest in growth while maintaining a healthy buffer. Use valuation benchmarks to prepare for the next round.
A startup has $400K remaining after a failed product pivot. Monthly expenses: $60K (salaries after layoffs), $8K (rent), $5K (marketing), $4K (software), $3K (other). Monthly revenue: $5K.
Gross Burn = $80,000/month
Net Burn = $80,000 - $5,000 = $75,000/month
Runway = $400,000 / $75,000 = 5.3 months
With only 5.3 months runway, this startup is in critical condition. Options include immediate further cost cuts, bridge financing, or accelerating revenue. A 25% reduction in burn would extend runway to 7.1 months.
While burn rate is essential for startup financial planning, it has limitations that founders and investors should understand when making decisions.
Burn rate calculations assume expenses remain constant month-over-month. In reality, startups often have lumpy expenses (quarterly payments, annual contracts, hiring spikes) that can significantly impact actual cash flow timing.
Static runway calculations don't factor in revenue growth. A startup with 10 months runway today might have significantly more if revenue is growing 20% monthly. Use ARR projections to model dynamic scenarios.
Standard burn rate excludes one-time costs or windfalls. A large legal settlement, equipment purchase, or customer prepayment can dramatically change your actual cash position compared to calculated projections.
Burn rate typically uses cash accounting, but your books may use accrual. Revenue recognized isn't always cash received, and expenses incurred aren't always cash paid. Ensure you're calculating burn based on actual cash movements.
Low burn isn't inherently good, high burn isn't inherently bad. What matters is burn efficiency, how effectively you convert spending into growth. A startup burning $200K/month growing 30% is likely healthier than one burning $50K/month growing 5%.
For more guidance, visit the Planning tools hub.
For fundraising timelines and runway benchmarks, see the Startup tools hub.
Pair this tool with the TAM SAM SOM Calculator and the Break Even Calculator to cross-check inputs. For strategic context, read our e-commerce valuation case study and explore the Business Planning tools hub.
Maintain 18-24 months of runway after each funding round. This gives you time to execute on milestones and begin fundraising before cash becomes critical.
Start fundraising when you have 9-12 months of runway remaining. Fundraising takes 3-6 months on average, and you want to negotiate from a position of strength.
Track both gross and net burn rate. Gross burn shows total cost structure, while net burn reflects actual cash consumption. Focus on improving both through cost efficiency and revenue growth.
Salaries typically represent 60-70% of burn rate for startups. When cutting costs, focus on non-people expenses first unless significant right-sizing is needed.
Burn efficiency matters more than absolute burn. Investors want to see efficient growth: reasonable burn producing strong results. Use burn rate alongside unit economics to demonstrate sustainable growth.
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