Burn rate is the speed at which a company consumes cash — typically expressed as net monthly cash outflow.

How it works

Two common definitions:

• Gross burn: Total operating expenses per month (payroll, rent, vendors) before customer revenue.
• Net burn: Cash actually leaving the bank after revenue and other inflows — the number that drives runway.

Example: $500K monthly expenses, $150K monthly revenue, net burn ≈ $350K. With $2.1M in the bank, runway is about six months at current spend.

Burn rate shifts with hiring, marketing ramps, and revenue timing. Seasonal businesses and companies with large annual prepayments need cash-basis views, not just accrual P&L. Boards often track burn against an approved plan and flag variance early.

Separate variable burn (marketing tests, contractors) from fixed burn (core payroll, rent). Fixed burn is harder to unwind quickly, which is why layoffs become the default lever when runway tightens — and why investors ask for headcount plans alongside monthly cash reports.

Why it matters

• Founders: Start fundraising before runway gets uncomfortably short — many rounds take four to six months from first meeting to wire. Cutting burn is a lever, but cutting the wrong functions can stall growth.
• Investors: Burn relative to milestones tells you if capital is buying progress. Flat metrics plus rising burn usually means a bridge, reset, or pass.

Common mistake

Using accrual accounting profit instead of actual cash movement. You can look “profitable” on paper while payroll and AWS bills drain the account.

Related ideas

See also burn multiple, runway, cash balance, and capital call.