Net Burn Rate
Definition
Net burn rate is the amount of cash a company loses per month after subtracting revenue from total expenses. It represents the actual rate at which a company depletes its cash reserves and directly determines how many months of runway remain.
Formula
Overview
Net burn rate is the most practical measure of how fast a startup is consuming cash. Calculated as total monthly expenses minus total monthly revenue, it tells founders exactly how much cash is leaving the bank each month after accounting for income. A company with $200K in monthly expenses and $60K in monthly revenue has a net burn rate of $140K.
Net burn rate is the number used to calculate runway: divide total cash on hand by net burn rate to determine months of survival. This makes it the single most important metric for cash management. Founders should recalculate net burn monthly and project it forward to ensure they begin fundraising at least 6–9 months before cash runs out.
The relationship between gross burn and net burn reveals business efficiency. A shrinking gap between the two (meaning revenue is growing relative to expenses) signals progress toward profitability. Conversely, if net burn is increasing even as revenue grows, the cost structure is scaling faster than the business, a red flag for investors.
Example
A startup has monthly expenses of $150K and monthly revenue of $35K. Net burn rate = $150K − $35K = $115K/month. With $920K in the bank, runway = $920K ÷ $115K ≈ 8 months.
Related Terms
Related Calculators
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