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← Statistics glossary

burn rate

Also called: net burn, monthly burn

The amount of money a business or founder spends per month. Net burn subtracts the monthly revenue, and it is the number that decides how long the runway lasts.

Burn rate is how much money a company spends each month. There are two versions: gross burn is all the spending, and net burn is spending minus revenue, the amount by which the bank balance actually falls each month.

Net burn is the one that matters for survival, because it sets the runway: cash ÷ net burn = months left. Gross burn is still worth watching, because it shows how much of the spending is fixed and would stay even if revenue dropped. A company with a gross burn of 150,000 and revenue of 140,000 looks almost safe, yet losing a few large customers would turn a small net burn into a large one overnight.

For a bootstrapped business the goal is to bring net burn to zero and then below it: once revenue exceeds spending, the company adds cash every month instead of burning it. Watch the trend, not a single month: one-off costs, annual prepayments and delayed invoices can make any single month look better or worse than the business really is.

Example

Before GarageDesk earns anything, Nina's gross burn is her 30,000 UAH of monthly spending. Her maintenance contract brings in 10,000 UAH, so her net burn is 30,000 − 10,000 = 20,000 UAH a month.

In October of year 2 the company itself spends 67,000 UAH a month (part-time support 16,000, a contract developer 35,000, tools and SMS 12,000, an accountant 4,000) plus 40,000 UAH for each founder: a gross burn of 67,000 + 80,000 = 147,000 UAH. MRR is 165,000 UAH, so net burn is 147,000 − 165,000 = −18,000 UAH: instead of burning cash, the business adds 18,000 UAH a month.

Common mistakes

  • Quoting gross burn as runway math. Divide cash by net burn, not by total spending.
  • Leaving out the founders' own pay. If the founders live on savings, their living costs are part of the real burn.
  • Judging by one month. A yearly prepayment can make one month look profitable; use a three-month average.
  • Letting fixed costs creep up. Subscriptions and contracts added "just for now" rarely go away on their own.