How to Calculate Your Startup's Burn Rate

Burn rate is the number that tells you how fast you're spending money. More importantly, it tells you how long until you run out. Every founder should know their burn rate cold. Not roughly. Not "somewhere around." Exactly.

This guide covers the formulas, shows you real calculations, and explains what healthy burn actually looks like at different stages. No financial background required.

Burn rate is how much cash your startup spends per month. That's it. If you start the month with $100,000 and end with $90,000, your burn rate is $10,000/month.

But there are two types of burn, and mixing them up causes confusion:

Gross burn rate: Total monthly operating expenses before any revenue. If you spend $50,000/month on salaries, rent, software, and everything else, your gross burn is $50,000.

Net burn rate: Monthly expenses minus monthly revenue. If you spend $50,000 but bring in $20,000 in revenue, your net burn is $30,000.

Net burn is usually the more useful number because it reflects reality. You're not just spending money; you're building a business that generates some income. Net burn tells you what's actually leaving your bank account.

For pre-revenue startups, gross burn and net burn are the same. Once you have revenue, net burn is what matters.

Gross Burn Rate = Total Monthly Operating Expenses

Net Burn Rate = Monthly Operating Expenses - Monthly Revenue

Here's a concrete example:

If this startup generates $5,000/month in revenue:

Net Burn = $17,500 - $5,000 = $12,500/month

That's the number you track.

Runway is how many months until you run out of cash. The formula is simple:

Runway (months) = Cash in Bank / Net Burn Rate

Using the example above:

If you have $150,000 in the bank and your net burn is $12,500/month:

$150,000 / $12,500 = 12 months of runway

This is the most important number for early-stage founders. It determines when you need to raise money, when you need to cut costs, and how much risk you can take.

A few nuances:

• Runway assumes burn stays constant. In reality, burn tends to increase as you hire and grow. Be conservative.
• Include upcoming large expenses. If you're about to hire or sign an annual contract, factor that into your calculation.
• Don't count receivables as cash. Money customers owe you isn't in your bank yet. Only count what's actually there.

Here's how burn rate scales with team size:

2-Person Startup (Pre-Revenue)

With $100,000 in the bank: 10.5 months runway

5-Person Startup (Early Revenue)

With $500,000 in the bank: 14.3 months runway

Notice how hiring 3 more people more than triples the burn rate. Payroll is almost always the biggest expense. Every hire decision is a burn rate decision.

There's no universal answer. Healthy burn depends on your stage, your business model, and your funding situation.

But here are some general principles:

Pre-seed/bootstrapped: Burn as little as possible. If you haven't proven product-market fit, every dollar spent is a bet on an unvalidated idea. Many successful bootstrappers keep burn under $5,000/month until they have revenue.

Seed stage: You've raised some money and have hypotheses to test. Typical burn is $25,000-$75,000/month. The goal is finding product-market fit, not scaling.

Series A: You've found something that works and need to pour fuel on it. Burn of $100,000-$250,000/month is common. You're investing in growth.

General rule: Your burn rate should match your learning rate. If you're spending $50,000/month but not learning anything new about your customers, market, or product, you're burning too fast.

The classic mistake is hiring ahead of product-market fit. You raise a seed round, hire 5 people, burn through the money in 12 months, and have nothing to show for it except a more expensive team.

• Runway under 6 months without a clear path to revenue or fundraising
• Burn increasing faster than revenue (the wrong kind of growth)
• Spending on non-essentials before nailing the core product
• Hiring before you know what works (building a team to figure things out instead of figuring things out, then building a team)
• Saying "we'll grow into it" to justify expenses that don't match current reality

The companies that survive aren't necessarily the ones that raised the most. They're the ones that managed burn intelligently.

Sometimes you need to cut. Here's what to look at:

High impact cuts:

• Pause hiring (biggest lever for most startups)
• Renegotiate or exit office leases
• Replace full-time roles with contractors for non-core functions
• Cut marketing spend that isn't producing measurable ROI

Medium impact cuts:

• Audit software subscriptions (most startups have 20-30% they don't actually use)
• Switch to cheaper tool alternatives
• Reduce founder salaries temporarily
• Delay equipment purchases

Low impact cuts (often not worth the pain):

• Eliminating coffee or snacks
• Downgrading internet
• Nickel-and-diming contractors
• Cutting team morale expenses

The goal isn't to be cheap. It's to be intentional. Every dollar should have a job. If you can't explain what a particular expense is doing for the business, cut it.

• Gross burn is total monthly expenses. Net burn is expenses minus revenue. Net burn is usually the number that matters.
• Runway = Cash / Net Burn. Know this number at all times.
• Healthy burn matches your stage. Pre-seed: minimal. Seed: moderate. Series A: aggressive but intentional.
• Payroll is the biggest driver of burn. Every hire is a burn rate decision.
• Track burn monthly. Watching trends is more valuable than checking occasionally.
• When cutting, focus on big levers (hiring, offices) not small ones (snacks, subscriptions).

How much runway should I have before raising my next round?

Start fundraising with at least 6 months of runway. 9-12 months is better. Fundraising takes longer than expected, and desperation shows. Investors can smell when you need money and will negotiate harder or pass entirely.

Should I include founder salaries in burn rate?

Yes. Even if you're paying yourself below market or nothing at all, include what you're actually taking. Some founders exclude salaries to make burn look lower, but that's lying to yourself. Your burn is your burn.

What's the difference between burn rate and expenses?

Burn rate is typically measured as the cash going out the door monthly. Expenses can include non-cash items like depreciation or prepaid allocations. For early-stage startups, they're usually close to the same. Focus on cash burn.

How do I calculate burn rate if revenue is lumpy?

If you have large contracts or seasonal revenue, use a 3-month rolling average for both revenue and expenses. This smooths out the noise and gives you a more accurate picture of true net burn.

When should I be worried about my burn rate?

Worry when: runway drops below 6 months without a funding plan, burn is increasing faster than revenue for multiple months in a row, or you can't clearly explain what each major expense is producing. These are signals to take action immediately.