Net Burn Rate

What’s Included in Net Burn Rate? 💼

All Expenses (Gross Burn):

Operating Expenses:

• Employee costs (salaries, benefits, etc.)
• Facility costs (rent, utilities)
• Technology costs
• Marketing and sales costs
• Administrative costs

Non-Operating Expenses:

• Debt payments
• Capital expenditures
• One-time costs

Minus All Revenue:

• Sales revenue
• Service revenue
• Subscription fees
• Interest income
• Other income

How to Calculate Net Burn Rate

The formula for Net Burn Rate:

Net Burn Rate = Gross Burn Rate – Monthly Revenue

Example Breakdown:

• Gross Burn: $200,000
  • Operating Expenses: $150,000
  • Non-Operating Expenses: $50,000
• Monthly Revenue: $150,000

Net Burn Rate = $50,000/month

Why It Matters

Understanding net burn rate is crucial for:

• Calculating true runway length
• Planning fundraising timing
• Making growth decisions
• Evaluating business sustainability
• Setting revenue targets
• Managing cash reserves

Net vs. Gross Burn

Key Differences:

• Net Burn:
  • Shows actual cash depletion
  • Includes revenue impact
  • More accurate for runway calculations
  • Reflects business performance
• Gross Burn:
  • Shows total spending
  • Ignores revenue
  • Used for expense planning
  • Indicates operational scale

Pro Tip: Many successful companies maintain a “burn multiple” – the ratio of net burn to revenue growth. A lower multiple (ideally below 1) suggests efficient growth.

Managing Net Burn

To improve net burn:

• Increase revenue
• Optimize pricing
• Improve collections
• Control expenses
• Balance growth investments
• Monitor unit economics

Remember: Net Burn Rate gives a realistic picture of cash flow, helping you make informed decisions about scaling, fundraising, and sustaining growth.