What is Burn rate?
The rate at which a business consumes cash reserves — typically expressed as monthly net cash outflow.
Burn rate measures how fast a business is consuming its cash reserves. It's most commonly used by startups operating at a loss, but it's a useful health metric for any business with limited runway.
Two definitions
Gross burn — total monthly operating expenses (rent, payroll, software, marketing) regardless of revenue.
Net burn — monthly operating expenses minus revenue. The actual rate at which cash is depleting.
Runway
Cash on hand divided by net burn = runway (months until cash hits zero).
Runway = Cash balance / Monthly net burn
A startup with $600K in the bank and $50K/month net burn has 12 months of runway.
Why it matters beyond startups
Even profitable businesses should track burn-equivalent metrics:
- Working capital burn — how fast accounts receivable + inventory grow relative to revenue
- Capex burn — how much capital expenditure is consuming free cash flow
- Customer acquisition burn — months of payback per new customer
These are early warning indicators that operating margin alone won't catch.
Related terms
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