What is burn rate?

Your strategy relies on fuel to move forward. Burn rate measures how fast you consume that fuel. It serves as a form of reality check for your business health. It tells you exactly how long your runway extends and signals when you need to adjust your spending or raise capital.

Finance teams need this clarity to lead effectively. Understanding burn rate transforms raw data into a timeline you can have faith in. It allows you to run simulations and plan different scenarios without relying on guesswork.

This guide helps you master the mechanics of cash flow. Here is what you will find:

•  Definitions and formulas for gross and net burn
•  Techniques to apply these metrics to real-world planning
•  Ways to avoid common calculation errors
•  Steps to model dynamic forecasts in Runway

What is burn rate?

Burn rate is how quickly your business uses its cash reserves. It's the speed at which you're using available cash before hitting positive cash flow or profitability.

Most companies see burn rate as monthly negative cash flow, shown in dollars. If you've got $500,000 in the bank and your burn rate is $50,000 per month, you've got 10 months of runway.

This metric is important because it directly affects your cash runway and impacts every major decision. Burn rate shapes your fundraising timetable, hiring plans, growth moves, and how you talk financial health to investors and your board.

Key formula variations

There's more than one way to calculate burn rate. Different formulas help with different questions. You'll probably use a few versions as you plan.

Gross burn rate

Gross burn rate is straightforward. It's your total monthly cash expenses. Simple.

gross burn rate = total monthly cash expenditures

This covers everything: salaries, rent, subscriptions, marketing, services, and any other cash out. Spent $200,000 last month? That's your gross burn rate.

Gross burn shows your total spending level. It's great for seeing your highest cash use and for planning if revenue drops to zero.

Net burn rate

Net burn rate brings in your revenue and other incoming cash. It shows the net cash leaving each month after you count what comes in.

net burn rate = total monthly expenses - total monthly revenue

Spend $200,000 but bring in $120,000? Your net burn rate is $80,000. Investors usually care most about this number, since it shows your actual cash use after revenue.

Net burn is usually the go-to for fundraising talks and runway estimates. When investors ask for your "monthly burn," they're asking for net burn.

Operating burn rate

Operating burn rate cuts out one-time costs. It isolates your ongoing operational spending for a cleaner view of your consistent run rate.

Operating burn rate = gross burn - one-time costs

Take your gross burn and remove large, irregular hits. This includes expenses like annual insurance premiums, office moving costs, or heavy recruiting fees.

Say you had a gross burn of $250,000 last month, but $50,000 covered annual insurance. Your operating burn rate sits at $200,000.

Adjusted burn rate

Adjusted burn rate smooths out the bumps when cash flows jump around. You average your burn over the last 3, 6, or 12 months to get a stable baseline.

To calculate it, simply look at the total cash spent over a set period and divide by the number of months.

Adjusted burn rate = Sum of monthly operating expenses over time period / Number of months

Imagine you pay $120,000 for annual software licenses in January but only $80,000 in expenses the next two months. Calculate your trailing 3-month (T3M) like this:

($120,000 + $80,000 + $80,000) / 3 = $93,333

This $93,333 figure is your adjusted burn rate. Finance teams use T3M, T6M (trailing 6 months), or TTM (trailing 12 months) rates to handle these swings and build forecasts that give you a better picture of your finances.

Why this matters for financial health

Burn rate links directly to cash runway. The core formula is simple:

runway (in months) = cash balance ÷ burn rate

The impact goes way beyond math. Burn rate sets the pace for fundraising. Most advisors recommend 18 to 24 months of runway. In 2025, investors now expect 24 to 30 months as a buffer.

Burn rate shapes your hiring. Each new team member adds fixed costs and increases your burn. Always model if the revenue they bring will offset the extra cash out and the shorter runway.

Growth investments raise your burn. Marketing, new products, expansion, these all add up. You'll want to check if you have the runway to let those efforts work before you need more funding.

Burn rate also sets investor expectations. It's normal to burn cash while building, but the best teams show that burn fuels real traction. As we share in our guide on operational efficiency metrics, you want to balance growth speed with burn.

Burn rate impacts valuation and fundraising. When your burn is low compared to your growth, you're more capital efficient and it boosts your valuation. If you burn $100,000 per month while growing ARR by $150,000 per month, that's a much better story than spending $300,000 for the same growth.

Key components and considerations

Getting burn rate right means knowing what counts and when.

• Cash expenses vs. accrued expenses: Burn rate is about cash out, not just what's on your income statement. If you use accrual accounting, adjust for items that hit your P&L but not your bank. Check your cash flow statement for a better holistic view.
• Fixed and variable costs: Burn rate covers both. Know the split for good forecasting. Fixed costs like salaries and rent don't change much month to month. Variable ones like cloud hosting or payment fees rise and fall with business. When you model future burn, know which costs grow alongside your business.
• Payroll and headcount: Payroll is usually the biggest burn chunk. Include taxes, benefits, and equity compensation (if it’s treated as cash). Hiring adds burn instantly, even if revenue impact comes later.
• One-time and recurring costs: Keep these clear. Only recurring costs count for go-forward burn. Be honest about the "one-time" label. If a consultant works every quarter, call it recurring.
• Prepaid expenses and timing differences: If you prepay software or insurance for a year, that cash leaves all at once but covers many months. For burn rate, you can either count the whole outflow when it happens (more conservative) or spread it out (more accurate for day-to-day planning).
• Capitalized costs: Some expenses sit on your balance sheet. For burn rate, count the actual cash out, not just the accounting treatment.
• Handling lumpy spending: High-growth teams see spending spikes, such as hiring sprints, big conferences, and so on. That's why adjusted burn rate using trailing averages helps keep things in perspective.

Benchmarks and industry rules of thumb

Burn rates vary by industry, stage, and business model. But a few patterns stand out.

• Early-stage SaaS companies with less than $2.5M ARR: Typical monthly cash burn ranges from $50,000 to $175,000.
• Growth stage ($2.5M to $10M ARR): Burn sits between $50,000 to $375,000 per month.
• Scale stage (above $10M ARR): Monthly burn can hit $375,000 to $1.75M.

But the number itself isn't everything. Burn efficiency matters more. That’s where your burn multiple comes in:

burn multiple = net burn ÷ net new ARR

David Sacks’ framework gives these breakdowns:

• amazing (< 1x)
• great (1.0-1.5x)
• good (1.5-2.0x)
• suspect (2.0-3.0x)
• bad (>3x)

The median burn multiple for Series A SaaS businesses is around 1.6x.

For runway, advisors lean toward 18 to 24 months of cash on hand. In today’s market, many are stretching to 24 to 30 months. Companies targeting fast milestones might go shorter, but strong, flexible plans matter more than hitting a number.

Benchmarks are useful, but don’t use them as hard rules. Your right burn rate depends on your business, opportunities, and funding landscape.

Common pitfalls to avoid

Finance teams make the same burn rate mistakes over and over. Watch out for these:

• Mixing up gross and net burn: Always clarify which you mean. Investors usually want net burn. Internal planning sometimes uses gross burn to see the upper limit.
• Lumping fixed and variable costs together: If you treat all costs as fixed, you overestimate future burn. If all variable, you underestimate. Keep them separate in your models.
• Forgetting about timing differences: Cash basis and accrual basis can tell different stories. Only count when cash actually leaves.
• Treating one-time costs as recurring: Big buildouts don't belong in normal burn. Always check what's truly one-off.
• Overlooking lumpy payments: Annual or quarterly costs can spike monthly burn. Adjusted burn averages make your forecast steadier.
• Missing committed expenses: Upcoming contracts or new hires aren't in this month's data, but they’ll be cash out soon. Factor these in.
• Blending growth investments with baseline operations: Know your recurring core spend. Growth investments add on top, not in the base.
• Comparing teams at different stages without context: Revenue mix, runway, business maturity all matter. Compare apples to apples.
• Ignoring deferred revenue: If you collect cash upfront for contracts, remember it doesn’t shrink your burn. Track how you treat this.
• Missing accounts payable swings: Stretching payments might lower your cash use for now, but those bills come due. Don’t let future spikes surprise you.
• Confusing sustainable with unsustainable burn: Efficient, growth-driven burn can last. Inefficient burn won’t. Watch the relationship between burn and growth, not just the total spend.
• Missing seasonality: Many businesses swing seasonally. Avoid forecasting off a non-representative month.

How to calculate burn rate in Runway

Here is how you can set up gross burn, net burn, and runway months directly in your model in Runway.

1. Make sure your data is in Runway

Start by connecting your accounting system to bring in your general ledger data. You need to organize this into an income statement database containing fields like Amount and Account Type. If you haven't done this yet, follow the guide on building a P&L to get your database structured correctly.

2. Create high-level expense and income drivers

Group your P&L line items into broad categories. In a driver table block, add drivers that sum up the specific lines you want to include in your calculation, such as Total_OpEx or Total_COGS. Use the sum() function to aggregate these from your underlying database.

3. Set up actuals vs forecast behavior

Define how your numbers populate for the past and the future. For each component driver:

• Set the Actuals formula to pull directly from your GL-backed database column.
• Set the Forecast formula for your future assumptions, such as a growth percentage or a direct verified input.

Runway automatically switches between these two formulas based on your Last close date. Read more about this logic in formulas basics.

4. Create a gross burn driver

Calculate your total monthly cash outflow by adding a driver named Gross_Burn.

• **Actuals formula:** Sum your cash outflow drivers (like Total_OpEx and Total_COGS) using sum(). If your expenses are stored as negative numbers but you want burn displayed as a positive value, simply multiply the sum by -1.
• Forecast formula: Use the same sum logic but reference the forecast versions of those expense components.

5. Create a net burn driver

Determine your net burn by subtracting cash inflows from your gross burn.

• First, define a Total_Cash_In driver that aggregates recurring inflows like Subscription_Revenue.
• Create a Net_Burn driver. The formula is usually Gross_Burn - Total_Cash_In. If your inflows are positive and outflows are negative, you might just sum them together.

6. Add a runway months driver

Visualize your survival runway by combining your burn rate with your bank balance.

• Ensure you have a Cash_Balance driver pulling from your balance sheet.
• Create a new driver called Runway_Months.
• Set the formula to Cash_Balance / abs(Net_Burn).

7. Monitor burn over time

Place your Gross_Burn, Net_Burn, and Runway_Months drivers into a driver table block or model page. This allows you to track trends and edit formulas easily. You can also use these drivers to compare scenarios, similar to how you would with a P&L. See budget vs. actuals and forecasting with closed actuals for tips on scenario comparison.

Turn your burn rate into a strategy

Burn rate isn't just a metric for your monthly report. It's a strategic lever you use to make smarter and bolder choices for your business.

Great finance teams move beyond static numbers. You need connected modeling tools to visualize how decisions impact your cash position before you make them. Runway helps you balance growth goals with liquidity requirements so you can keep investors and stakeholders aligned on the plan.

Runway gives you total control over your financial modeling:

• Fit for your workflow: Whether you're a scrappy finance team of one or leading cross-functional planning, you own the model without vendor bottlenecks.
• Scenario testing: Run simulations to compare outcomes and see exactly how changes affect your runway.
• Strategic allocation: Invest capital where it matters most based on data rather than guesswork.

Ready to map out your finances with confidence? Get started with Runway and see how flexible your modeling can be.