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Startups & Business › Metrics & Unit Economics

Burn Rate

How much cash the company loses each month.

Tech Entrepreneur · MVP · core

Also known as: burn rate, monthly burn, cash burn

Burn rate is net cash outflow per month: money spent minus money earned. It is the speedometer of startup survival — every plan, hire and fundraise calibrates against it. Gross burn (total spent) shows scale of operations; net burn (spent minus earned) shows the hole revenue must eventually fill.

spend $120k/mo, earn $40k → net burn $80k/mo → $1M lasts ~12.5 months (see runway)

Founders should know it weekly, not quarterly: hiring decisions, marketing tests and office moves all re-price against this one number. Falling burn without falling progress is the purest form of extending life.

The classic mistakes:

  • Not knowing it. Surprisingly common — founders quoting last quarter’s number as today’s. Compute monthly from bank movements, automatically, reviewed weekly.
  • Vanity denominator games. “Burn multiple looks fine if you count the grant/loan/founder loan as revenue.” Net burn counts operating reality; financing is financing (burn multiple).
  • Cutting muscle, not fat. Panic cuts hitting the growth engine (the two engineers building the revenue feature) while perks survive. Cut by future value, fastest payback first.
  • Hiring ahead of proof. Each hire adds ~12 months of salary-shaped burn before contributing. Hire against validated need with dated payback expectations, not against hope.
  • Ignoring the trend. Flat $80k burn with shrinking cash is a countdown, not stability. Burn direction matters as much as level — falling burn buys time twice.

Pair with: runway (the clock), default alive (the verdict), and honest monthly updates. Burn is the number the whole company should feel.