---
title: "What Is Burn Rate?"
term: "Burn Rate"
description: "Burn rate is how fast a company spends cash — usually measured as net cash outflow per month after revenue, showing how long existing cash will last at current spending."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/burn-rate
---

# What Is Burn Rate?

> Burn rate is how fast a company spends cash — usually measured as net cash outflow per month after revenue, showing how long existing cash will last at current spending.

**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](/glossary/burn-multiple), runway, [cash balance](/glossary/cash-balance), and [capital call](/glossary/capital-call).

## FAQ

### What is burn rate in simple terms?

Burn rate is your monthly cash spend. Net burn subtracts revenue from expenses; gross burn looks at total operating costs before revenue. Divide cash in the bank by net burn to estimate runway in months.

### Why does burn rate matter?

For founders, burn rate sets the fundraising clock. For investors, rising burn without matching traction is one of the fastest signals that a company will need more capital on worse terms.


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Source: https://venturecapitaltracker.com/glossary/burn-rate