Net burn rate is how much cash a company loses each month after accounting for revenue. The formula is Gross Burn − Monthly Revenue. It's the true rate of cash depletion — the number that, divided into your cash balance, gives your runway.
What Is Net Burn Rate?
Net Burn Rate represents how much money a company is losing (or gaining) each month after considering both expenses and revenue. It’s like your actual cash flow scorecard, showing the real rate of cash depletion.
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
Net Burn Rate = Gross Burn − Monthly RevenueThe true monthly cash drain
Worked example
$200,000 gross burn ($150K operating + $50K non-operating) against $150,000 monthly revenue:
$200,000 − $150,000 = $50,000 / monthNet burn
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.
Net Burn Rate FAQ
How do you calculate net burn rate?
Subtract monthly revenue from gross burn: Net Burn = Gross Burn − Revenue. $200K gross burn minus $150K revenue = $50K net burn per month.
What's the difference between net burn and gross burn?
Gross burn is total monthly spend, ignoring revenue. Net burn subtracts revenue, showing the actual cash leaving the bank — the right number for runway calculations.
How does net burn determine runway?
Divide your cash balance by net burn: Runway = Cash ÷ Net Burn. $1M in the bank at $50K net burn = 20 months of runway.
What is a good net burn rate?
There's no single number — it depends on stage and growth. A useful gauge is the "burn multiple" (net burn ÷ net new revenue); below 1 signals efficient growth.
Related burn-rate metrics
- Cash Burn Rate — the umbrella term for cash spent per month.
- Gross Burn Rate — total cash going out (costs only).
- Net Burn Rate — cash out minus cash in — the true monthly drain. (you are here)
