Burn Rate

Burn rate is how quickly a company spends its cash reserves, usually expressed as a monthly figure. It's the core survival metric for any business spending ahead of profitability: burn rate and cash on hand together determine your runway — how long you can operate before you need more money or must turn a profit.

Gross vs net burn

There are two versions, and the difference matters:

• Gross burn — total cash spent per month on all operating costs, ignoring revenue.
• Net burn — cash spent minus cash brought in, so it reflects revenue offsetting expenses.

For example, a startup spends $100,000 a month and collects $40,000 in revenue. Gross burn is $100,000; net burn is $100,000 − $40,000 = $60,000. Runway is calculated from net burn, since revenue genuinely extends how long the cash lasts.

Why it matters

• It sets runway — cash on hand divided by net burn is the number of months you have left.
• It frames every decision — a hire, a tool, or a marketing push is really a question of how many weeks of runway it costs.
• It reflects efficiency — rising MRR that shrinks net burn is the goal; burn climbing faster than revenue is a warning.

Managing burn

Burn isn't inherently bad — deliberate spend to acquire customers is how growth companies operate. What matters is the return: efficient CAC and strong retention mean today's burn buys durable revenue. The Rule of 40 captures the balance, arguing growth rate plus profit margin should clear 40%, so high burn is only justified by fast enough growth.