What Is Burn Rate?
The rate at which a company spends cash, usually measured monthly.
The rate at which a company spends cash, usually measured monthly.
Burn rate is the rate at which a startup uses its cash reserves, typically expressed as a monthly figure. Gross burn rate is total monthly spending; net burn rate is total spending minus revenue.
Understanding your burn rate is critical for calculating runway — how many months you can operate before running out of cash. Investors scrutinize burn rate to assess capital efficiency.
As a rule of thumb, startups should maintain at least 12-18 months of runway. If your net burn rate is $100K/month and you have $1.2M in the bank, you have 12 months of runway.
Formula
Net Burn Rate = Monthly Operating Expenses - Monthly Revenue
Example
If you spend $150K/month and earn $50K/month, your net burn rate is $100K/month.
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