What is Burn Rate? A SaaS Startup Guide
What is Burn Rate? A SaaS Startup Guide
Burn rate is the speed at which your startup spends its cash. Every founder must know it. Every investor asks about it. It is the metric that, combined with your cash balance, determines how long your company can survive — and is the foundation of Startup Runway.
Burn Rate Definition
Burn rate is the net amount of cash your startup spends each month, after accounting for any revenue. It measures how quickly you are depleting your cash reserves. A company with $80,000 in monthly expenses and $30,000 in revenue has a net burn rate of $50,000 per month.
Burn Rate Formula
Net Burn Rate = Monthly Expenses − Monthly Revenue
Gross Burn Rate = Total Monthly Expenses (before subtracting revenue)
Use our Burn Rate Calculator to find your net burn. Then use the Runway Calculator to see how long your cash will last.
Gross Burn vs Net Burn
Gross burn is total monthly spending — useful for understanding your absolute cost structure. Net burn is what actually matters for survival — it accounts for revenue and shows the real rate of cash depletion. Investors almost always refer to net burn. When someone asks “what is your burn?”, they mean net burn.
Burn Rate and Runway
Burn rate is meaningless without context — that context is runway. Runway = Cash in Bank ÷ Monthly Net Burn. A $50,000/month burn with $600,000 in the bank gives 12 months of runway. The same burn with $150,000 in the bank gives only 3 months. Use the Runway Calculator alongside burn rate to understand your actual position.
What is a Safe Burn Rate?
There is no universally safe burn number — it depends on your cash balance, revenue growth trajectory, and ability to raise. The rule most investors follow: always maintain 12–18 months of runway. If runway drops below 6 months, the company is in a danger zone. A team burning $200,000/month with $4M in the bank is in a stronger position than a team burning $50,000/month with $200,000 in the bank.
Burn Rate and the Metrics Ecosystem
Burn rate connects directly to Runway and indirectly to MRR — as MRR grows, net burn shrinks. Tracking burn alongside MRR growth shows whether the business is on a path to profitability. Burn rate also informs fundraising timing. See the full picture in the SaaS Metrics Guide.
Frequently Asked Questions
What costs drive burn rate highest? In most early-stage SaaS companies, 60–80% of burn is payroll — engineering, sales, and marketing headcount. Reducing burn almost always starts with headcount decisions, which is why layoffs are a common response when runway gets short.
Should burn rate increase as we grow? It often does — and that can be healthy if revenue is growing faster than burn (improving gross margin and path to profitability). A company whose burn doubles as MRR triples is becoming more efficient. A company whose burn doubles as MRR stays flat is in trouble.
How do investors evaluate burn rate? Investors compare burn rate to revenue growth, gross margin, and CAC efficiency. The key ratios: burn multiple (net burn ÷ net new ARR) and months to default. A burn multiple under 1.5x is considered efficient. Above 2x raises questions about capital efficiency.