How to calculate your startup’s cash burn rate

As the adage goes, you have to spend money to make money. In venture capital parlance, that spend — the net cash used after taking into account revenue earned and paying out expenses — is known as your cash burn rate. Understanding your business’s cash burn rate and managing it effectively is crucial for any founder who wants to keep their business afloat.

Read on to learn how cash burn rate works, why it matters, and how to calculate your business’s burn rate to better understand your runway and plan accordingly.

A company’s cash burn rate — otherwise known simply as burn rate — is the measure of how quickly it spends (i.e., “burns”) its money, either per month, quarter, or year. It’s what you would call “negative cash flow” when looking at your company’s cash flow forecast or cash flow over a previous period.

Burn rates are commonly used to assess the financial performance of early-stage tech startups, given these businesses often raise capital from investors to fund operations, develop products, and acquire customers.

Investors scrutinize burn rate because early-stage startups often aren’t yet making money and are burning through their cash balance — and in many cases, this is happening even well before that company is ready to bring a product to market, making it even more critical to preserve the capital at this pre-revenue point. To that end, burn rate helps map out a company’s cash runway — the amount of time a company has left before it runs out of money — and also infers how much the company needs to raise.

A formula for determining runway is as follows (or use this cash burn rate calculator):

Cash balance ÷ Monthly cash burn = Runway

If, for example, your business had $10M in the bank with a monthly cash burn of $500K, that would mean your company has a cash runway of 20 months (10M ÷ 500K = 20). Based on this basic formula, a company can extend its runway by lowering its cash burn rate — in effect, increasing revenue and decreasing costs.

That said, it’s not always as simple as running these numbers. In reality, companies grow their expenses over time, such as by hiring more team members or spending more money on marketing. This naturally increases burn rate, meaning that the runway calculated through this formula — which is based on a steady, constant burn rate — could likely be higher than a company’s true runway. The exception here would be if revenue is growing at the same clip as expenses — but for startups, that’s rarely the case, as cash burn is typically front-loaded while founders spend a significant amount on building out their product and team well before starting to bring in revenue.

In practice, a more accurate way to calculate and understand cash runway is to build a cash flow forecast that considers different factors — hiring, marketing, investments, etc. — that can impact the rate at which your company is burning through cash.

Gross cash burn rate vs. net cash burn rate

There are two ways to measure cash burn, and each tells you something different.

Your gross cash burn is the total amount of cash your company spends in a given month, regardless of any incoming revenue. 

Gross burn rate = Total monthly cash outflows

Your net cash burn rate factors in cash coming in the door. It reflects the actual rate at which your cash balance is declining (or growing, if you're cash flow positive).

Net burn rate = Total monthly cash outflows − Total monthly cash inflows

If your company spends $150,000 per month and brings in $50,000 in revenue, your gross burn is $150,000, and your net burn is $100,000. 

Gross burn answers a worst-case scenario question: if all revenue stopped tomorrow, how fast would you go through your cash on hand? Net burn tells you how quickly your cash balance is actually shrinking, and it's the number you'll use most often when calculating runway.

You don't need sophisticated modeling software to calculate your cash burn rate. You just need your bank transactions or cash flow statement from the past three months (at a minimum) and a spreadsheet.

Here's the process:

Step 1: Total your operating cash outflows

List every payment your company made during the month. This includes payroll, contractor payments, vendor bills, rent, software subscriptions, marketing spend, inventory purchases, insurance, and any loan repayments. Figure out this number for each of the past three months (or more).

Step 2: Total your operating cash inflows

List all money received during the month: customer payments, subscription revenue, product sales, and any other operating income. Calculate the inflows for each of the past three months (or more). 

Step 3: Calculate monthly gross and net burn

For each month, your gross burn is the total from Step 1. Your net burn is Step 1 minus Step 2.

Step 4: Average across months to account for volatility

A single month can be misleading. Maybe you paid an annual insurance premium in January, or a big customer paid late. A three-month trailing average gives you a better picture of your monthly cash burn rate.

Example:

Here's how this looks for over three months:

In Month 3, this company's net burn was $120,000. But the three-month average might make more sense for planning if the third month reflected a single large payment instead of an overall increase in expenses.

If the company has $1.2M in the bank, here's the runway under each approach:

• Most recent month (Month 3): $1,200,000 ÷ $120,000 = 10 months
• 3-month trailing average: $1,200,000 ÷ $108,333 = 11.1 months

In this case, the difference is small, but in months with large one-time expenses or irregular customer payments, the trailing average can help you plan better.

What to include (and what to exclude)

Getting your cash burn rate formula right depends on including the right items. 

Include in your burn calculation:

• Payroll and contractor payments
• Vendor and supplier bills
• Inventory purchases
• Marketing and advertising spend
• SaaS tools and subscriptions
• Rent and utilities
• Loan and debt repayments

Exclude from your burn calculation:

• Non-cash expenses like depreciation, amortization, and stock-based compensation
• One-time expenses, like a large legal fee
• Financing inflows like venture capital, debt financing, or equity raises (when looking at the cash inflows for net burn)

Other factors to consider:

• Annual prepayments (like insurance or a yearly software contract): Spread the cost across 12 months when calculating your average burn. A $24,000 annual premium hitting in one month inflates that month's burn by $22,000 relative to the run rate.
• Refunds and chargebacks: These reduce your inflows. If you had $60,000 in gross sales but $5,000 in refunds, your cash inflow for the month is $55,000.
• Capital expenditures (equipment, servers, vehicles): These represent cash out the door, so include them. Just be aware you’ll see a significant spike in a single month's burn, which is another reason to use a trailing average.
• Deferred revenue: If you collect annual subscriptions upfront, the cash hits your bank account immediately, but you deliver value over 12 months. Your cash inflows will look strong in the collection month and low in subsequent months. Factor this in when interpreting month-to-month cash inflow swings.

If the goal of a business is to turn a profit, founders should be working to increase their revenue, decrease their cash burn, or both to become cash flow positive.

That being said, it often takes time for early-stage businesses to build the traction to achieve profitability. As such, keeping a close eye on cash burn rate can provide a window into what a business needs to do to flip the switch, whether that means cutting costs or improving efficiency. Additionally, investors will want to understand your cash burn rate to determine how much funding you’ll need and if you’re allocating capital responsibly.

At the same time, monitoring cash burn rate in an effort to become cash flow positive helps ensure that startups aren’t reliant on venture funding. The VC market is fickle — investors may decide to stop deploying capital, or the market could worsen. Maintaining a healthy cash burn rate with an eye toward profitability will ensure you’re building a sustainable, resilient business.

Having a solid handle on your cash burn rate also ensures you’re thinking about your company’s cash management strategy correctly. Knowing your runway and ongoing cash outflow allows you to consider liquidity needs so that you can manage cash allocation accordingly in both the short and long term.

A healthy cash burn rate depends on various factors, such as the industry and stage of a business. Variable factors aside, one common rule is that companies should aim for a decreasing cash burn rate over time. This indicates that the company is increasing its revenue and heading on a steady path toward profitability.

Burn multiple: Connecting burn to growth efficiency

If you run a SaaS or subscription-based business (including ecommerce companies with a subscription model), burn multiple is a useful metric for evaluating how efficiently you're converting your cash spend into growth.

Burn multiple = Net burn ÷ Net new ARR

A company with $100K in monthly net burn (the net of cash outflows and cash inflows) and $50K in net new ARR has a burn multiple of 2.0x. A company burning $100K but adding $25K in net new ARR has a burn multiple of 4.0x.

Lower is better. A burn multiple under 2x is generally considered efficient. You're spending less than $2 for every $1 of new recurring revenue. Between 2x and 4x is acceptable for early-stage companies investing in growth. Above 4x signals that your spending isn't translating into proportional revenue gains, and it's looking critically at where the cash is going.

Burn multiple won't apply to every business model, but for subscription-based companies, it's one of the clearest ways to evaluate whether your startup's cash burn is translating to real returns.

Tracking your burn once a quarter isn't enough. You want to review frequently enough that you can stay ahead of any problems.

Monthly burn review. At the end of each month, calculate your gross burn, net burn, and updated runway. Compare that to your forecast. If your actual burn exceeded the forecast by more than 10%, identify the expenses that were more than expected before the next month starts.

Rolling 13-week cash projection. A weekly cash projection covering the next 13 weeks (roughly one quarter) gives you visibility into your near-term cash needs. This is especially important if your business has lumpy revenue or seasonal swings in expenses. Update it weekly with actual bank balances.

Raise trigger. The general guidance in the current fundraising environment is to begin preparing for a raise when your runway drops below 9 to 12 months. Let’s say you hit 9 months of remaining runway in April 2026. You’ll need to plan for the following:

• April 2026: Start preparing by building your materials, warming up investor relationships, and getting your data in order. 
• June 2026-October 2026: You’re actively working on the raise. Expect this process to take 3-6 months.
• November or December 2026: You close a new funding round, before you run out of cash (projected for January 2027).

If your runway drops below 6 months and you haven't started fundraising, you’ll have far fewer options. In this example, you would run out of cash in October 2026, and You'll likely need to reduce burn immediately or pursue bridge financing.

While the goal should be profitability, spending cash isn’t necessarily bad. Again, it’s not untrue that companies need to spend money to make money. Whether or not a company is spending responsibly or irresponsibly is largely at the discretion of the founders.

Every business is unique, meaning every business needs a different cash burn rate to facilitate its growth goals. For example, a highly technical field like aerospace or biotech generally requires significant upfront investment into hardware and R&D to achieve future profitability. An ecommerce company, on the other hand, may need to funnel large amounts of cash toward inventory early on, with sales from that inventory taking time to trickle in after the fact.

As a founder, allowing your business’s unique position, industry, and roadmap to inform your target cash burn rate is essential.

How burn looks different by business type

The "right" burn rate depends heavily on what your company actually does. Here are a few common scenarios:

Pre-revenue SaaS. Your biggest cash expenses are likely engineering salaries, cloud infrastructure, and early sales/marketing hires. Gross burn runs really high relative to revenue (which may be zero or near-zero). Net burn and gross burn can be nearly identical at this stage. Runway planning centers on how long you can fund product development before you need traction metrics strong enough to raise your next round. A common target: reach a demonstrable product-market fit milestone before your runway drops below 9 months.

Inventory-heavy ecommerce. Your cash is tied up in purchasing inventory well before customers pay for it. Your gross burn may spike around seasonal purchasing cycles (buying holiday inventory in Q3, for example) and then level out as revenue catches up. The gap between gross and net burn can fluctuate significantly month to month. Runway planning should account for these seasonal swings, and some ecommerce founders maintain a separate cash reserve specifically for inventory purchases so they can distinguish between operating burn and inventory investment.

R&D-intensive biotech or hardware. Burn can be extremely high for years before the company has any revenue. Most of the cash goes toward research, clinical trials, lab equipment, or prototype development. Gross and net burn are often nearly the same number, since revenue is minimal or nonexistent. Runway planning is typically tied to specific development milestones instead or revenue. Milestones might be completing a trial phase, securing a patent, or reaching a prototype stage. These companies often raise larger rounds with the explicit goal of funding operations through the next milestone.

Understanding how your startup burns through cash is vital on several levels — from complex decision-making around cash management strategy and thoughtful allocation of funds. Understanding your company’s runway, liquidity needs, and path toward profitability are all essential to scaling your startup in the right direction over time.

To learn more about the costs of launching a startup, read our 2025 survey-based report “The new economics of starting up.”