Burn Rate
Also known as Cash Burn, Monthly Burn, Gross Burn, Net Burn
Burn rate is the monthly rate at which a startup spends cash before reaching positive cash flow. Gross burn is total monthly cash outflow. Net burn subtracts monthly cash revenue from cash outflow and represents the actual cash loss per month.
Formula
Net Burn = Monthly Cash Expenses - Monthly Cash Revenue- Monthly Cash Expenses
- All cash leaving the business: payroll, rent, software, COGS, marketing
- Monthly Cash Revenue
- Cash actually collected from customers in the month, not booked or accrued
In depth
Burn rate is a cash concept, not an accounting concept. The relevant question is how fast money leaves the bank, because that drives the date a startup runs out of capital. Two definitions matter. Gross burn counts every dollar of cash spent in a month: payroll, rent, software, contractors, COGS, marketing. Net burn subtracts the cash actually collected from customers in the same month. A growth-stage SaaS company with $400K of monthly spend and $150K of monthly cash collections has a gross burn of $400K and a net burn of $250K.
Net burn is the operative number for runway calculations. Gross burn matters when revenue is volatile or seasonal, because it shows the cost base that a startup is committed to regardless of sales.
Why it matters
Burn rate sets the deadline for the next financing. A $250K net burn against $5M of cash gives twenty months of runway. Push burn to $400K without growing revenue and the same balance gives twelve months. The relationship between burn and growth is what investors actually evaluate at growth stage: Bessemer's efficiency framework reads net new ARR against net burn, with ratios above 1.0x signaling capital-efficient growth and below 0.5x signaling that the company is paying too much for each dollar of new revenue.
Worked example
A Series A SaaS company at month-end:
| Line | Amount |
|---|---|
| Payroll | $280K |
| Rent and software | $35K |
| Marketing | $55K |
| Contractors and COGS | $30K |
| Gross burn | $400K |
| Cash collections | $150K |
| Net burn | $250K |
Gross burn = $280K + $35K + $55K + $30K = $400K
Net burn = $400K - $150K = $250K
With $5M in the bank, runway is $5M / $250K = 20 months. If marketing doubles to $110K without lifting collections, net burn moves to $305K and runway compresses to 16.4 months.
Frequently asked
What is the difference between gross burn and net burn?
Gross burn is total cash spent in a month. Net burn is gross burn minus cash revenue. A company spending $400K and collecting $150K has $400K gross burn and $250K net burn. Investors usually quote net burn because it drives runway.
Is burn rate the same as operating loss?
No. Burn rate is a cash measure. Operating loss includes non-cash items like stock-based compensation, depreciation, and accruals. A company with heavy stock comp can show a large GAAP loss while burning much less actual cash.
What burn rate is considered healthy?
Healthy burn is the burn that keeps runway at twelve to eighteen months given the next plausible round. Bessemer's State of the Cloud framework tracks burn relative to net new ARR via the BVP Efficiency Ratio, targeting net new ARR / net burn above one for efficient growth-stage SaaS.
Should burn rate include capital expenditures?
Yes for cash-based burn. Any cash leaving the bank account counts, including equipment purchases, deposits, and prepaid annual contracts. The exception is one-time financing flows like a capital raise or debt drawdown, which are reported separately.