Burn rate is one of the most important metrics for pre-profitability startups. Here is everything you need to know to calculate and track it correctly.
The two burn rate formulas
Gross burn rate = total monthly cash outflow Sum of all salaries, rent, software, marketing, contractors, and other expenses.
Net burn rate = gross burn − monthly revenue The actual amount of cash you consume each month after revenue offset.
Runway = cash on hand ÷ net burn rate
Example
Cash in bank: $2,000,000 Monthly gross burn: $250,000 Monthly revenue: $50,000 Net burn: $250,000 − $50,000 = $200,000/month Runway: $2,000,000 ÷ $200,000 = 10 months
What investors look at
- Burn multiple = net burn ÷ net new ARR. <1× is efficient; >3× is burning unsustainably.
- Runway — standard expectation is 18+ months when closing a round.
- Month-over-month trend — is net burn increasing (growth mode), flat (scaling), or decreasing (efficiency improvements)?
How to track burn rate
- Export all transactions from your bank/accounting software monthly
- Categorise by department (engineering, sales, marketing, G&A)
- Compare gross burn, net burn, and runway month-over-month
- Tie to your ARR growth: burn multiple = net burn / net new ARR
Use the cash burn by department calculator to model your current burn composition and runway.