Burn Rate
Burn rate is the rate at which a company spends its cash reserves, typically measured monthly. Net burn rate accounts for revenue, showing how much cash the company loses per month after income.
Also known as: cash burn, monthly burn, net burn rate
Formula
Monthly Expenses - Monthly Revenue
Why It Matters
Burn rate determines how long your company can survive before it needs to become profitable or raise additional funding. It is the clock ticking in the background of every startup's strategy. A company with $3M in the bank and a $250K monthly burn rate has 12 months of runway - that is the time horizon for all strategic decisions.
Tracking burn rate alongside revenue growth reveals whether the company is on a path to sustainability. An increasing burn rate is acceptable if revenue is growing faster. But increasing burn with flat or declining revenue is a crisis that demands immediate action - cutting costs, pivoting strategy, or accelerating fundraising.
Burn rate is also a discipline mechanism. When the team knows exactly how much cash leaves the building each month, spending decisions become more rigorous. The best operators track burn rate by department to identify where spending delivers returns and where it does not.
How to Calculate
Gross burn rate is total monthly cash expenditures - everything the company spends. Net burn rate is gross burn minus monthly revenue (cash collected, not just recognized). Net burn is more useful because it shows how quickly the cash balance is actually declining. If the company collects $100K in revenue and spends $350K, the net burn rate is $250K per month.
Net Burn Rate Calculator
Monthly Expenses - Monthly Revenue
Industry Applications
A Series B SaaS startup with $12M in the bank and $500K monthly net burn has 24 months of runway. They set a target to reduce net burn to $300K within 6 months by improving sales efficiency.
Benchmark: Post-Series A SaaS companies typically target 18-24 months of runway; pre-revenue startups target 12-18 months
A DTC brand manages burn rate carefully during seasonal troughs, reducing marketing spend by 40% in Q1 to preserve cash for high-ROI Q4 spending.
How to Track in KISSmetrics
While burn rate is primarily a financial metric tracked through accounting systems, KISSmetrics contributes by providing accurate, real-time revenue data. Use KISSmetrics Revenue Reports to track monthly revenue trends, then subtract from total monthly expenses to calculate net burn. This approach provides a more current view than waiting for monthly financial closes.
Common Mistakes
- -Confusing gross burn (total spending) with net burn (spending minus revenue), which gives a very different picture of sustainability
- -Not distinguishing between recurring operational burn and one-time expenditures like equipment purchases or security deposits
- -Assuming a linear burn rate when spending patterns may be seasonal or lumpy due to annual contracts and quarterly bonuses
- -Ignoring accounts receivable timing - revenue recognized but not yet collected does not slow actual cash burn
Pro Tips
- +Always track net burn rate (after revenue) as your primary metric, but keep gross burn visible to understand total spending
- +Model different burn scenarios: current trajectory, reduced spend, and aggressive growth to understand your optionality
- +Set burn rate guardrails tied to revenue growth milestones - increase spend only when revenue targets are hit
- +Review burn rate monthly at the executive level and quarterly with the board, with department-level breakdowns
Related Terms
Runway
Runway is the number of months a company can continue operating at its current burn rate before running out of cash. It represents the time available to reach profitability or secure additional funding.
Revenue
Revenue is the total income generated by a business from the sale of goods or services before any expenses are deducted. It is the top line of an income statement and the starting point for all financial analysis.
Gross Margin
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It represents the portion of each dollar of revenue available to cover operating expenses and generate profit.
Rule of 40
The Rule of 40 states that a healthy software company's combined revenue growth rate and profit margin should equal or exceed 40%. It balances the tradeoff between growth and profitability.
Break-Even Point
The break-even point is the sales volume or revenue level at which total revenue equals total costs, resulting in zero profit or loss. It marks the threshold where a business transitions from losing money to making money.
See Burn Rate in action
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