Monthly Burn Rate

Quick Definition

The amount of cash a company spends each month net of revenue, determining how long capital will last.

What is Monthly Burn Rate?

Monthly burn rate is how much cash your company spends (net of revenue) each month. If you start the month with $500K and end with $420K, your burn is $80K. It's the most fundamental measure of how fast you're consuming capital.

Burn rate directly determines runway: how long until you run out of money.

Gross Burn vs Net Burn

Gross burn is total spending regardless of revenue. Net burn is spending minus revenue. A company spending $100K/month with $60K revenue has $100K gross burn but only $40K net burn.

Net burn is more relevant for runway calculations since revenue offsets expenses.

How to Calculate Monthly Burn Rate Step by Step

Step 1: Check your bank balance at the start and end of the month. Exclude any fundraising deposits — you want to see operational cash flow only.

• Starting cash (March 1): $680,000
• Ending cash (March 31): $595,000
• Fundraising received in March: $0
• Monthly Burn = $680K - $595K = $85,000

Step 2: Verify with a bottom-up calculation. Total your expenses and subtract revenue:

• Total expenses: $142,000
• Revenue collected: $57,000
• Net Burn = $142K - $57K = $85,000 ✓ Matches

Step 3: Calculate runway.

• Cash remaining: $595,000
• Runway = $595K ÷ $85K = 7 months

Step 4: Use a 3-month rolling average. Single months can be misleading (big annual payments, delayed revenue). Average the last 3 months:

• January burn: $72,000
• February burn: $98,000 (annual insurance payment)
• March burn: $85,000
• 3-month average: $85,000 → Runway: 7 months

Step 5: Model the "what if" scenarios.

• If you hire 2 engineers ($25K/mo additional): burn jumps to $110K, runway drops to 5.4 months
• If revenue grows 15% monthly: burn decreases each month, runway extends beyond 12 months
• If you cut marketing by half ($10K saved): burn drops to $75K, runway extends to 7.9 months

Common mistakes founders make:

• Measuring burn from the P&L instead of actual bank balance changes (timing differences matter)
• Not including upcoming large expenses in the forecast (tax payments, annual contracts)
• Ignoring revenue growth when calculating runway (but also be conservative — don't count revenue you haven't earned)
• Waiting until runway is under 6 months to react (by then your options are limited)

Managing Burn Rate

Track burn monthly and forecast forward. Know your runway at all times. Plan fundraising when you have 6+ months of runway remaining. Have a plan to cut burn if needed. Balance growth investment against cash preservation.

Formula

Monthly Burn = Starting Cash - Ending Cash (for the month)

Or: Monthly Burn = Total Monthly Expenses - Total Monthly Revenue

Runway = Cash Balance ÷ Monthly Burn

Example

Your SaaS startup tracks monthly cash:

• Starting cash: $500,000
• Ending cash: $420,000
• Monthly burn: $80,000

At this burn rate with $420K remaining:

Runway = $420,000 ÷ $80,000 = 5.25 months

Time to either raise, cut costs, or reach profitability.