Burn Rate: Tracking How Fast You Spend Cash

Simple definition

Burn Rate is how much money your business spends each month beyond what it earns. There are two types: gross burn (total monthly expenses, ignoring revenue) and net burn (total expenses minus total revenue). Net burn is the number that matters because it tells you how fast your cash is actually disappearing.

If your gross burn is $5,000/month but you're earning $3,000 in MRR, your net burn is only $2,000. That's a very different survival equation. Solo founders often conflate the two and panic about their total spending when their net burn is actually manageable.

How to calculate it

Net burn rate = Total monthly expenses - Total monthly revenue

Say your monthly costs break down as:

• Hosting & infrastructure: $180
• SaaS tools (analytics, email, etc.): $220
• Freelance designer: $800
• Your living expenses allocated to the business: $2,500
• Total: $3,700

Your MRR is $1,400.

Net burn = $3,700 - $1,400 = $2,300/month

Gross burn = $3,700/month

If you have $16,000 in the bank, net burn gives you 7 months of runway. Gross burn would make it look like 4.3 months. Use net burn for planning.

Example

You're building a form builder tool. Month 1: gross burn $3,200, MRR $0, net burn $3,200. Month 4: gross burn has crept to $3,800 (you added a Zapier integration that costs $100/month and bumped up your hosting), but MRR is now $1,600. Net burn is $2,200 -- actually lower than month 1 despite higher spending. The question isn't "am I spending too much?" but "is each dollar of new spending generating more than a dollar of new revenue?" If that $100 Zapier integration helped you close 5 new customers at $49/month, it paid for itself 2.4x in the first month.

Related reading

• Runway
• Gross Margin