# Gross Burn vs Net Burn

## Quick Definition
Gross burn is total monthly spending; net burn is spending minus revenue, showing actual monthly cash consumption.

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## What is Gross Burn vs Net Burn?
Gross burn is your total monthly spending, everything that goes out the door. Net burn is spending minus revenue, the actual cash you're losing each month. The difference is your revenue offset.

A company spending $100K/month with $40K revenue has $100K gross burn but only $60K net burn. Revenue extends runway by reducing the actual cash drain.

## Why Both Metrics Matter
Gross burn shows operational scale and cost structure. Net burn shows actual cash consumption and runway. You need both to understand financial health.

Investors often ask about both. Gross burn reveals what it costs to run the business. Net burn reveals how quickly you'll need more capital.

## How to Calculate Gross Burn and Net Burn Step by Step

**Step 1: Pull your bank statements for the month.** You want actual cash movements, not accrual accounting numbers.

**Step 2: Total all cash outflows — that's Gross Burn.**

- Payroll: $110,000  
- Rent/co-working: $8,000  
- Software & tools: $6,500  
- Cloud infrastructure: $12,000  
- Marketing spend: $15,000  
- Contractors: $9,000  
- Insurance/legal: $4,500  
- Everything else: $5,000  
- **Gross Burn: $170,000**

**Step 3: Total all cash inflows — that's revenue.**

- Customer payments received: $62,000  
- (Exclude fundraising proceeds — that's not operating revenue)

**Step 4: Subtract revenue from Gross Burn — that's Net Burn.**

- **Net Burn = $170,000 - $62,000 = $108,000**

**Step 5: Calculate runway from both.**

- Cash in bank: $840,000  
- Gross Burn runway: $840K ÷ $170K = **4.9 months** (worst case — if revenue goes to zero)  
- Net Burn runway: $840K ÷ $108K = **7.8 months** (current trajectory)

**Step 6: Use a 3-month rolling average.** Single months are noisy. Average both metrics over the last 3 months for planning. Use Net Burn for investor conversations and runway planning. Use Gross Burn to understand cost structure and identify where to cut.

**Common mistakes founders make:**

- Only tracking one metric (you need both for different purposes)  
- Using accrual numbers instead of actual cash movement  
- Forgetting irregular expenses (annual software contracts, quarterly tax payments)  
- Telling investors Gross Burn when they asked for Net Burn (or vice versa)

## Runway Calculations
Runway can be calculated from either, but net burn is more relevant. Gross burn runway assumes zero revenue. Net burn runway reflects your actual cash consumption rate.

## Formula

- Gross Burn = Total Monthly Operating Expenses  
- Net Burn = Total Expenses - Total Revenue  
- Net Burn = Gross Burn - Revenue

## Example
Your SaaS startup tracks monthly cash flow:

- Total expenses (Gross Burn): $200,000  
- Revenue: $75,000  
- Net Burn: $200,000 - $75,000 = $125,000

With $1.5M in the bank:

- Gross Runway = $1.5M ÷ $200K = 7.5 months  
- Net Runway = $1.5M ÷ $125K = 12 months

Revenue gives you 4.5 extra months of runway.

## Related Terms

- **Burn Rate**  
  The rate at which a company spends its cash reserves, typically measured as net cash spent per month.  
  [Learn more](/content/terms/burn-rate/index.html)

- **Monthly Burn Rate**  
  The amount of cash a company spends each month net of revenue, determining how long capital will last.  
  [Learn more](/content/terms/monthly-burn-rate/index.html)

- **Runway**  
  The amount of time a company can continue operating at its current burn rate before running out of cash.  
  [Learn more](/content/terms/runway/index.html)