Burn Rate
Burn rate is the rate at which a startup consumes its cash reserves before reaching profitability. Gross burn is total monthly spending; net burn is spending minus revenue.
Formula
In depth
Two types:
Gross Burn: total monthly cash outflow (salaries, rent, AWS, tools, everything). This tells you the true cost of operating at your current scale.
Net Burn: gross burn minus monthly revenue. This is how much cash you're actually losing each month. A company with $50K gross burn and $20K MRR has $30K net burn.
Runway: how many months of cash you have left. Runway = Cash Balance ÷ Net Monthly Burn. The target: always have 12–18 months of runway. Raise when you have 9 months left — fundraising takes 3–6 months.
Default Alive vs Default Dead: Paul Graham's concept. Default Alive = if you don't raise more money, your current growth rate gets you to profitability before cash runs out. Default Dead = you will run out of money before becoming profitable without raising. Know which one you are.
Real example
Cash balance: $600,000. Monthly revenue: $15,000. Monthly expenses: $65,000. Net burn: $50,000/month. Runway: $600,000 ÷ $50,000 = 12 months.
Tools & calculators
Related terms
MRR (Monthly Recurring Revenue)
Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue generated from all active subscriptions. It's the north star metric for SaaS companies.
ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the yearly equivalent of your recurring subscription revenue. It's MRR × 12 and is the primary metric investors use to value SaaS companies.
Startup Runway
Startup runway is the number of months a startup can continue operating before running out of cash, given its current burn rate and cash balance.
Unit Economics
Unit economics describes the revenues and costs associated with one unit of your business (typically one customer), used to determine if your business model is fundamentally profitable at scale.
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