What is Burn Rate? How Startups Calculate and Report it
Master the essentials of burn rate, learn the formulas for accurate measurement, and discover why tracking it is vital.
Table of Contents
Startups depend on cash to operate before profitability. Burn rate is a core financial metric for early-stage companies. Knowing how to calculate and present it helps founders plan their runway and give investors a clear view of how capital is being managed.
What is Burn Rate in Startups?
Burn rate refers to how much cash a startup spends each month before it reaches positive cash flow or profitability. It’s one of the simplest ways to understand how fast a company is using its capital and how much time it has left to continue operating at its current pace.
Early-stage startups almost always spend ahead of revenue, so it focuses on cash movement rather than accounting profit. Founders use it to plan hiring, product development, and fundraising timelines. Investors use it to assess capital efficiency and execution risk.
It is typically tracked on a monthly basis and appears in two forms:
Gross burn rate
It is the total monthly cash outflows, including salaries, rent, and marketing, excluding revenue. It shows how much cash a startup spends each month to keep the business running, regardless of income.
Net burn rate
Net burn rate subtracts revenue from expenses to show the company’s actual monthly cash loss. This metric is especially beneficial for startups that have begun generating revenue and want a clearer view of ongoing cash consumption.
Together, these metrics help teams balance growth spending with financial control.
How Do Startups Calculate Burn Rate?
The calculation depends on the revenue stage.
For pre-revenue startups, gross burn is the main reference point. It’s calculated by averaging monthly expenses over a set period.
Example:
If a startup spent $480,000 over the past 12 months, its gross burn is:
$480,000 ÷ 12 = $40,000 per month
For startups generating revenue, the gross burn gives a more accurate picture of cash usage.
Net burn rate formula:
Net burn rate = Monthly expenses − Monthly revenue
Example:
If monthly expenses are $40,000 and monthly revenue is $15,000, the gross burn equals:
$40,000 − $15,000 = $25,000 per month
Gross burn feeds directly into runway, which estimates how long existing cash will last.
Runway formula:
Cash balance ÷ Net monthly burn rate
A startup with $600,000 in cash and a net burn of $50,000 per month has 12 months of runway.
How Should Startups Report Burn Rate to Investors?
The gross burn shows up early and often in pitch decks, investor updates, and data rooms. Investors view it as a signal of how deliberately a company is deploying capital and progressing toward its next milestone.
A “good” burn rate isn’t about keeping costs as low as possible. It’s about alignment. Consistent burn that supports growth goals builds confidence and makes forecasting easier. Clear explanations for changes matter more than hitting an arbitrary number, especially as startups scale.
Frequently Asked Questions:
Is burn rate the same as runway?
No. Burn rate measures monthly cash usage. Runway estimates how long current cash will last based on that rate.
Do profitable startups still track burn rate?
Yes. Even profitable companies monitor burn to manage cash flow and plan investments.
Why do investors focus so much on burn rate?
It helps them assess risk, capital efficiency, and how long a startup can operate before needing more funding.
Empower Your Fundraising with Auptimate
Whether you’re a fund manager or angel syndicate with Auptimate, we simplify SPV setup and management, helping you easily choose the right investment strategies. Our platform streamlines compliance, reporting, and investor onboarding so you can focus on your investment goals.
Get Started with Auptimate Today!
