What Is Burn Rate?
Burn rate is the amount of cash a startup spends each month more than it brings in, usually measured monthly.
How it works
There are two common versions. Gross burn is total monthly spending: salaries, rent, software, ads and everything else. Net burn is gross burn minus the cash you collect from customers. Net burn is the number that drains your bank account, and it is the one most people mean when they say "burn rate."
The formula in words: net burn equals cash going out minus cash coming in, over a month. Some founders average the last three months to smooth out lumpy bills and payments.
Example
For example, a company pays $40,000 in salaries, $5,000 in software and rent, and $5,000 on ads, so gross burn is $50,000. Customers pay $18,000 that month. Net burn is $50,000 minus $18,000, or $32,000. With $160,000 in the bank, runway is five months.
Why founders care
Burn is the lever you control most directly. Investors often look at burn alongside growth to judge whether spending is turning into progress. A high burn is not automatically bad if it buys fast, durable growth, but it shortens your runway and raises the pressure to raise money on time.
Common mistakes
- Tracking only revenue and ignoring cash timing, such as invoices paid 60 days late.
- Treating burn as fixed when hiring plans will change it.
- Cutting spending on the thing that actually produces customers.
- Mixing up gross and net burn when comparing to other companies.
Frequently asked questions
What is a good burn rate for a startup?
It depends on stage, funding and how fast the company is growing. A better question is whether each dollar of burn is moving you toward a milestone before your runway ends. Compare notes with advisors or investors in your market.
Is burn rate the same as expenses?
Not quite. Gross burn is total monthly spending. Net burn subtracts the cash customers pay you, so it shows how much your bank balance actually falls each month.
Related terms
Go deeper
- Startup Budget: How to Build One and Find Your Runway GuideCreate a startup budget step by step: costs checklist, monthly expenses, a runway formula with worked numbers, and what it really costs to start a business.
- Startup Metrics That Matter: MRR, Churn, CAC and LTV GuideStartup metrics explained in plain English: MRR, ARR, churn, CAC, LTV and more, with formulas in words, worked examples, and what investors ask for.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.