How to Calculate Burn Rate — and What to Do When It's Too High
Burn rate is the most watched metric in a startup's early life. Here's how to calculate gross and net burn, what the burn multiple tells you, and the fastest ways to extend runway.
Gross Burn vs Net Burn
Gross burn rate is your total monthly cash outflow — every dollar spent on salaries, infrastructure, rent, marketing, and software. Net burn rate is gross burn minus revenue: the actual monthly cash drain. A company spending $200K/month collecting $150K in revenue has a net burn of $50K/month. Net burn determines your runway. Use our free burn rate calculator to compute both instantly.
How to Calculate Runway
Runway = Cash on Hand ÷ Monthly Net Burn Rate. With $1.2M in the bank and $80K/month net burn, runway is 15 months. Conservative founders model at 1.2× current burn to account for payroll increases and new hires pushing burn higher over time.
The Burn Multiple: What Investors Actually Care About
The burn multiple — net burn divided by net new ARR — measures capital efficiency. Below 1× is excellent. Above 2× is a concern. Above 4× is a red flag most institutional investors won't fund through. This became the central capital efficiency metric after the 2022 market correction, when investors shifted from rewarding growth at any cost to demanding that growth be earned efficiently.
What Drives Burn Rate Up
Headcount is 60–75% of startup burn and the highest-leverage lever to reduce quickly. Infrastructure costs often grow faster than revenue because engineering teams optimise for speed, not cost — a dedicated cloud cost review typically yields 20–40% savings. Marketing spend not tied to clear CAC/LTV metrics is pure burn. Identify which channels generate customers at acceptable CAC before cutting.
When to Start Fundraising
Start your next fundraising process with 12–18 months of runway remaining. This gives you a 4–6 month process window while maintaining negotiating leverage. Starting with under 9 months puts you in a distressed position — investors will price that into their terms. At 6 months remaining, cut costs immediately to extend runway while raising.
Extending Runway Without Raising
- Annual billing incentives — converting monthly to annual plans accelerates cash without changing revenue recognition
- Deferring non-critical hires — each deferred $120K/year hire extends runway by roughly one month per $120K of cash
- Renegotiating software subscriptions — most vendors offer better terms to retain customers
- Maintaining proven marketing channels while pausing unproven experiments