What is Burn Rate?

Burn rate is the speed at which a company spends its cash. For a startup that isn't profitable yet, it is the number that decides how long you have to figure things out - and runway, the number of months until the bank balance hits zero, falls straight out of it.

This page covers the two kinds of burn, how to calculate runway, what counts as a healthy burn rate, and how to bring it down without stalling growth.

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What Is Burn Rate?

Burn rate is the amount of cash a business loses in a given period, usually a month. There are two versions, and mixing them up is the most common mistake founders make when they talk about it.

Gross burn is everything you spend in a month: salaries, contractors, hosting, tools, ads, rent. It ignores revenue completely.

Net burn is what you spend minus the cash that comes in. It is the amount your bank balance actually goes down by each month.

Gross Burn = Total cash spent in the month
Net Burn = Cash spent in the month − Cash collected in the month

When people say "our burn rate is $40K a month" without qualifying it, they almost always mean net burn. Gross burn is still worth knowing, because it tells you your cost base - what you would be spending if revenue disappeared tomorrow.

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How to Calculate Runway

Runway is how many months you can keep operating at your current net burn before you run out of cash.

Runway (months) = Cash in the bank ÷ Net Burn

A worked example

A SaaS startup has $600,000 in the bank. Last month it spent $85,000 and collected $35,000 from customers.

Gross Burn = $85,000
Net Burn = $85,000 − $35,000 = $50,000
Runway = $600,000 ÷ $50,000 = 12 months

Now suppose revenue grows by $5,000 a month while costs stay flat. Net burn shrinks every month, so real runway is longer than 12 months. The reverse is also true: if you're about to hire two engineers, runway is shorter than the simple formula says. The formula assumes the current month repeats forever, which it never does, so treat it as a starting point and model the next few months forward.

Use a trailing three-month average of net burn rather than a single month. One annual prepayment from a big customer can make a single month look almost break-even and flatter your runway badly.

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Why Burn Rate Matters

It sets your fundraising clock. Raising a round typically takes several months from first meeting to money in the bank. If you have nine months of runway, you are already close to the point where you need to start, and investors can tell when a founder is negotiating from a short runway.

It shows whether growth is getting cheaper. Net burn on its own doesn't say whether the spend is working. Pair it with net new ARR and you get the burn multiple, which tells you how much cash each dollar of new recurring revenue cost.

It forces decisions early. A clear burn number makes trade-offs visible. "Can we afford this hire?" becomes "this hire takes runway from 14 months to 12 - is it worth it?"

It is the bridge to profitability. Default alive or default dead comes down to whether revenue growth closes the gap to zero net burn before the cash runs out.

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Burn Rate Benchmarks

There is no universal "good" burn rate, because the right number depends on how much cash you have and how fast you're growing. What can be said, roughly:

Runway	How it usually reads
Under 6 months	Urgent - cut costs or close funding now
6 - 12 months	Tight - fundraising or a path to break-even should already be in motion
12 - 18 months	Comfortable for most early-stage startups
18 - 24+ months	Plenty of room, often the target right after raising

These ranges are rough conventions founders and investors use, not hard rules. A bootstrapped company with steady revenue can live safely on less runway than a venture-backed one burning heavily for growth.

For burn itself, judge it relative to growth rather than in absolute dollars. A $200K monthly net burn is fine for a company adding $250K of net new ARR each month and alarming for one adding $30K. That is exactly what the burn multiple and the Rule of 40 are for.

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How to Reduce Burn Rate

Grow revenue before cutting costs. Every dollar of new MRR reduces net burn by a dollar, every month, for as long as the customer stays. Reducing churn has the same effect and usually costs less than acquisition.

Push annual plans. Annual prepayments bring a year of cash in upfront. They don't change the underlying economics, but they extend runway and smooth out net burn. Just remember that cash from an annual plan has to last twelve months.

Audit recurring software and infrastructure. Tools accumulate quietly. A quarterly review of subscriptions, unused seats and over-provisioned hosting often finds a few percent of gross burn with no downside.

Watch your gross margin. If hosting, support or third-party API costs grow faster than revenue, burn rises even while sales look healthy.

Tie hiring to milestones. Headcount is usually the biggest line in gross burn and the hardest to reverse. Hiring against a revenue or product milestone, rather than a calendar, keeps burn in step with progress.

Check where acquisition money goes. If CAC payback is getting longer, more of your spend is sitting in customers who haven't paid it back yet. Cutting the worst channel can lower burn without lowering growth much.

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How to Track Burn Rate

Burn rate needs two inputs: what you spend and what you collect. Chartsy covers the collection side. It pulls revenue, refunds and MRR from Stripe, Paddle, Polar, Lemon Squeezy, Creem or Freemius, so you can see net revenue by month and how fast recurring revenue is growing - the part of net burn that changes the most.

Chartsy does not see your bank balance or your expenses. Cash on hand and gross burn come from your bank, accounting software or a finance spreadsheet. A simple monthly routine works well: take gross burn from your books, take net revenue for the same month from Chartsy, subtract, and divide your cash balance by the result to get runway.

Connect Stripe and track the revenue side of your burn rate →

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