Burn Rate
The rate at which a startup spends cash reserves before reaching profitability.
What it means
Burn rate measures how quickly your company is spending money. Gross burn is your total monthly expenses, while net burn subtracts any revenue. If you spend $50k/month and earn $20k, your net burn is $30k. Combined with your cash reserves, burn rate determines your runway - how many months you can operate before running out of money.
Formula
Net Burn Rate = Monthly expenses − Monthly revenue
Why it matters
Every startup founder should know their burn rate and runway. Running out of cash is the #1 reason startups fail, not bad products. Understanding burn helps you make strategic decisions: when to hire, when to cut costs, and when organic marketing becomes critical.
What is burn rate?
Burn rate is how much cash your startup spends each month. Net burn rate subtracts revenue from expenses to show how fast you're depleting cash reserves.
What is runway?
Runway is how many months you can operate at your current burn rate before running out of cash. Runway = Cash reserves ÷ Net monthly burn rate.
Related