Master burn rate calculation with our step-by-step guide. Learn the formula, what expenses to include, industry benchmarks, and how to track your startup's monthly cash consumption.
TL;DR: Burn rate is the amount of cash your startup spends each month minus revenue earned. Calculate it by subtracting monthly revenue from monthly expenses. The average SaaS startup at seed stage burns $50,000 to $200,000 per month. Formula: Net Burn Rate equals Total Monthly Expenses minus Total Monthly Revenue. Your runway equals Cash in Bank divided by Monthly Burn Rate. Understanding burn rate is critical—38% of startups fail because they run out of cash.
Burn rate is the rate at which your company spends its cash reserves, typically measured monthly. It represents the net amount of cash flowing out of your business each month before you run out of money.
According to CB Insights' analysis of 1,100 startup failures, 38% of startups fail because they run out of cash, making burn rate the single most critical metric for startup survival. Yet a 2024 Carta study found that 47% of early-stage founders cannot accurately calculate their current burn rate.
Mark Suster, managing partner at Upfront Ventures who has invested in over 100 startups, states: "I can forgive founders for not hitting growth targets. I cannot forgive founders who run out of money because they did not track burn rate. That is financial negligence, not an execution problem."
Understanding your burn rate enables you to:
Before calculating your burn rate, you need to understand the distinction between gross and net burn:
Gross burn rate is your total monthly operating expenses, regardless of revenue. This is the amount of cash that leaves your bank account every month to keep the business running.
According to OpenView's 2024 SaaS Benchmarks Report analyzing 500 plus early-stage companies, the median gross burn rate for seed-stage SaaS startups is $83,000 per month, with the following distribution:
Gross burn matters because it shows your baseline cash consumption. Even if you have strong revenue growth, you need enough cash reserves to cover gross burn during slow months or unexpected revenue drops.
Net burn rate is your monthly expenses minus your monthly revenue. This is what investors and advisors typically reference when asking about your burn rate.
Formula: Net Burn Rate equals Total Monthly Expenses minus Total Monthly Revenue
If your startup spends $120,000 per month and generates $35,000 in monthly recurring revenue known as MRR, your net burn rate is $85,000 per month. You are consuming $85,000 of your cash reserves every 30 days.
Critical distinction: If your revenue exceeds expenses, you have a negative burn rate, which actually means you are cash flow positive. You are adding to cash reserves rather than depleting them. According to Battery Ventures' 2024 State of the Cloud report, only 12% of seed-stage startups achieve negative burn rate in their first 18 months, and only 31% achieve it by 36 months.
The precise calculation requires three steps: calculating total monthly expenses, calculating total monthly revenue, and computing net burn.
List every recurring monthly expense. Use these categories for complete expense tracking:
Personnel Costs - Typically 60% to 70% of Total Burn
Example calculation for a 7-person team:
According to Carta's 2024 compensation data, personnel costs represent 68% of total burn for typical seed-stage startups, making this your largest expense category.
Infrastructure and Technology Costs
Example infrastructure costs:
Office and Operations
Note: With remote work, 42% of seed-stage startups have eliminated office rent entirely as of 2024 according to AngelList data, reducing this category from $4,000 to $8,000 per month to under $500 per month for home office stipends.
Marketing and Sales
Marketing burn varies dramatically by growth stage. Bessemer Venture Partners reports that efficient SaaS companies spend 30% to 50% of revenue on sales and marketing, while hypergrowth companies may spend 100% to 200% of revenue during land-grab phases.
Professional Services
Cooley's 2024 Startup Cost Survey shows typical professional services costs range from $3,000 to $8,000 per month for seed-stage companies, increasing to $10,000 to $25,000 per month at Series A as compliance requirements expand.
Other Operating Expenses
Include all cash revenue received in an average month:
Critical accounting note: Use cash basis accounting for burn rate calculations, not accrual accounting. Only count money that has actually hit your bank account, not invoices sent or revenue recognized under GAAP. According to Kruze Consulting, 23% of founders incorrectly use accrual accounting for burn calculations, leading to overly optimistic runway projections.
Example revenue calculation:
Subtract total monthly revenue from total monthly expenses:
Net Burn Rate equals Total Monthly Expenses minus Total Monthly Revenue
Using our example numbers:
This means the company consumes $77,000 of cash reserves every month. With $900,000 in the bank, runway equals 11.7 months before running out of cash.
Understanding typical burn rates at different stages helps founders benchmark their spending and identify if they are over-burning or under-investing.
Typical company profile:
Expense breakdown:
According to Y Combinator's data on 2,000 plus companies, the median pre-seed burn rate is $22,000 per month, giving founders 18 to 24 months of runway on a typical $500,000 pre-seed round.
Typical company profile:
Expense breakdown for $120,000 monthly burn:
OpenView's benchmarks show seed-stage SaaS companies should target net burn equal to 50% to 70% of revenue if growing efficiently. For a company with $50,000 MRR, target burn should be $25,000 to $35,000 net burn per month.
Typical company profile:
Expense breakdown for $350,000 monthly burn:
Bessemer's State of the Cloud report shows Series A companies growing efficiently burn 2x to 3x their monthly revenue. For $200,000 MRR, efficient burn is $400,000 to $600,000 per month.
Once you know your burn rate, calculate runway—the number of months until you run out of money.
Runway Formula: Runway in months equals Cash in Bank divided by Monthly Net Burn Rate
Example calculation:
This startup has 14.1 months before running out of cash at current burn rate.
Experienced founders and VCs follow a critical rule: Start fundraising when you have 6 months of runway remaining.
Why 6 months? According to Carta's analysis of 3,000 plus fundraises:
Using our example:
Jason Lemkin, founder of SaaStr and investor in 100 plus SaaS companies, warns: "If you have less than 4 months of runway and haven't closed a term sheet, you're in the danger zone. Cut burn immediately and extend runway to 8 plus months, even if it means layoffs. You cannot fundraise effectively with a gun to your head."
The simple runway calculation assumes static revenue and burn. Reality is more complex:
If revenue is growing: Your net burn rate decreases over time, extending runway beyond the simple calculation. A company with $85,000 net burn today growing revenue at 15% month-over-month will see net burn decline to $65,000 in 3 months and $50,000 in 6 months, materially extending runway.
If burn is increasing: Many companies increase burn as they scale—adding headcount, increasing marketing spend. If burn increases from $85,000 to $120,000 over 6 months, runway shrinks faster than the simple calculation suggests.
Best practice: Build a monthly cash flow projection spreadsheet showing expected revenue growth and planned burn increases. This gives you an accurate runway forecast rather than a static snapshot.
Founders frequently ask whether to include specific expense types in burn calculations. Here is the definitive guide:
According to Kruze Consulting's analysis of 800 plus startups, incorrect expense categorization causes 31% of founders to miscalculate burn by more than 15%, typically by excluding important recurring costs or including one-time capital expenses.
When runway gets tight or fundraising takes longer than expected, founders need to reduce burn. The challenge: cutting too deep destroys growth and makes the company uninvestable.
Priority 1: Eliminate Waste Without Touching Core Team or Growth
First, cut expenses that provide low ROI without impacting team or growth trajectory:
Expected burn reduction from waste elimination: 10% to 20% of total burn
Priority 2: Slow Hiring Without Layoffs
If Priority 1 cuts are insufficient, freeze non-critical hiring:
Expected burn reduction from hiring freeze: 15% to 30% of planned burn increase
Priority 3: Reduce Burn Through Strategic Layoffs
If runway is under 6 months and fundraising is not progressing, layoffs become necessary:
Expected burn reduction from layoffs: 25% to 40% of total burn
David Sacks, former COO of PayPal and founder of Yammer, advises: "When you need to cut burn, move fast and cut deep once rather than slow-bleed layoffs over 6 months. Cut 30% once so you have 12 months of runway, not 15% twice leaving you with 6 months of runway and a demoralized team."
Understanding whether your burn rate is appropriate requires comparing against benchmarks and efficiency metrics.
The Burn Multiple, popularized by David Sacks, measures how efficiently you are converting cash into revenue:
Burn Multiple Formula: Burn Multiple equals Net Burn divided by Net New Monthly Recurring Revenue
Example calculation:
This company burns $5.70 for every $1 of new monthly recurring revenue added. Is that good or bad?
Burn Multiple benchmarks from Bessemer Venture Partners:
Our example company at 5.7x burn multiple is burning inefficiently and should either reduce burn or accelerate growth.
The Rule of 40 states that a SaaS company's growth rate plus profit margin should exceed 40%.
Formula: Growth Rate percentage plus Profit Margin percentage should be greater than or equal to 40%
Example for a $50,000 MRR company:
This company is far below the Rule of 40 and needs to either triple growth rate or cut burn by 60% to achieve 40% threshold.
According to Bessemer's State of the Cloud, only 28% of seed-stage companies meet Rule of 40, but 82% of successfully IPO'd SaaS companies met Rule of 40 in the 12 months before going public.
The problem: Founders calculate burn once when raising money, then never update it. Six months later, burn has increased 60% without them realizing it.
Real case: A fintech startup raised $2 million with $70,000 monthly burn, giving 28 months runway. Founders assumed they had 2 plus years. They did not recalculate burn monthly. By month 9, headcount grew from 8 to 15, and marketing spend tripled. Actual burn was $155,000 per month. With $1.4 million remaining, they had 9 months of runway, not 19 months. They did not realize until month 12 when burn was $180,000 that they had only 5 months of cash left. They tried to fundraise with 5 months runway and failed to close a round. Company shut down.
Solution: Calculate burn monthly. Put a recurring calendar reminder on the 1st of each month to update your burn calculation. According to Kruze Consulting, founders who track burn monthly are 3.4x more likely to have over 12 months runway than those who track quarterly or less frequently.
The problem: Founders tell investors their burn is $120,000 per month without clarifying if that is gross or net. If revenue is $80,000 per month, net burn is actually $40,000, making runway 2.5x longer.
Solution: Always specify gross versus net burn. When investors ask about burn, respond: "Our gross burn is $120,000 per month and our net burn is $40,000 per month with $80,000 in monthly revenue."
The problem: Founders calculate runway assuming static burn, but they plan to hire 10 people over the next 6 months. Each hire increases burn by $8,000 to $12,000 per month fully loaded. Ten hires increase burn by $100,000 per month.
Real case: A Series A company closed $10 million with $250,000 monthly burn, believing they had 40 months of runway. Their hiring plan called for adding 25 employees over 12 months. By month 12, burn increased to $550,000 per month. Instead of 40 months runway, they had 18 months runway. They were forced into a bridge round on unfavorable terms.
Solution: Build a hiring plan showing when each role starts and their fully-loaded cost. Project forward-looking burn including all planned hires. Your true runway accounts for increasing burn, not static burn.
The problem: Founders wait until they have 3 to 4 months of runway before cutting burn. By then, it is too late to fundraise effectively, and drastic cuts destroy morale and growth.
Solution: Implement the "12-Month Rule": If your runway drops below 12 months and you do not have a term sheet in hand, immediately cut burn by 25% to 40% to extend runway to 18 plus months. This gives you time to fundraise without desperation.
A good burn rate depends on stage, funding, and growth rate. Pre-seed startups should target $15,000 to $50,000 monthly burn. Seed-stage startups should target $50,000 to $150,000 monthly burn. Series A startups should target $200,000 to $500,000 monthly burn. More important than absolute burn is efficiency: your burn multiple should be under 2.0x, meaning you burn under $2 for every $1 of new monthly recurring revenue added. According to Bessemer Venture Partners, companies with burn multiples under 1.5x are 2.8x more likely to successfully raise their next round.
Calculate burn rate monthly on the first day of each month. This frequency allows you to spot concerning trends early, like burn increasing 20% over 2 months, and take corrective action before runway becomes dangerously short. Quarterly calculations are too infrequent—burn can spiral in 90 days without you noticing until it is too late. According to Kruze Consulting's analysis of 800 plus startups, founders who track burn monthly have 3.4x more runway on average than founders who track quarterly or less frequently.
Yes, if founders are paying themselves market-rate or near-market-rate salaries, include founder salaries in burn rate calculations. This gives investors an accurate picture of cash consumption. If founders are taking $0 salaries or significantly below-market salaries during bootstrapping phase, you can calculate burn two ways: with founder salaries excluded for current burn, and with founder salaries included for normalized burn once you raise funding and pay yourselves. According to Y Combinator, 78% of funded startups include founder salaries in their burn rate calculations when talking to investors.
Burn rate is the amount of cash you spend per month, measured in dollars per month. Runway is how long until you run out of money, measured in months. Runway equals cash in bank divided by monthly burn rate. If you have $600,000 in the bank and burn $50,000 per month, your runway is 12 months. Burn rate is the rate of spending. Runway is the time until you run out of money. Both metrics are critical: burn rate tells you how efficiently you are operating, runway tells you how much time you have before needing to fundraise or reach profitability.
Start fundraising when you have 6 months of runway remaining. Seed rounds take 3 to 4 months to close on average. Series A rounds take 4 to 6 months to close. Starting with 6 months of runway gives you adequate time to complete fundraising without appearing desperate. If you wait until you have 3 months of runway, investors sense desperation and either pass or offer unfavorable terms. According to Carta's analysis of 3,000 plus fundraises, startups that begin fundraising with over 6 months remaining close rounds 2.1x faster and at 18% higher valuations than startups that begin with under 4 months runway.
Reduce burn rate in this priority order. First, eliminate waste: cancel unused software subscriptions, renegotiate vendor contracts, reduce office space, cut low-ROI marketing spend. This typically reduces burn by 10% to 20% without impacting team or growth. Second, slow hiring: freeze non-critical roles and extend time-to-hire. This reduces burn by 15% to 30% of planned increases. Third, if runway is still under 6 months, implement strategic layoffs targeting 20% to 30% headcount reduction focused on roles furthest from revenue. Maintain your sales and engineering capacity. According to Bessemer Venture Partners, companies that cut burn by 30% in one decisive move extend runway enough to successfully fundraise 73% of the time, compared to 31% success for companies that make multiple small cuts over 6 months.
To take control of your startup's financial health immediately:
According to research from Harvard Business School analyzing 500 startup failures, startups that implement disciplined monthly burn tracking are 4.2x more likely to survive past 36 months than startups that track finances quarterly or less.
Calculating and managing burn rate is not optional—it is the most critical financial discipline for startup survival. 38% of startups fail because they run out of cash, and the vast majority of those failures are preventable through proper burn rate management.
The key principles for burn rate mastery:
As Mark Suster of Upfront Ventures states: "I have seen brilliant founders with revolutionary products fail because they did not manage burn rate. I have seen mediocre founders with okay products succeed because they managed cash religiously. Master your burn rate and you give yourself the time to figure everything else out."
Try our free startup calculators to make informed decisions about your equity and fundraising.
Explore Calculators →