Operations
Burn Rate
The rate at which a company spends its cash reserves, typically measured monthly.
Full Definition
Burn rate is the rate at which a startup spends its cash reserves, typically measured on a monthly basis. Gross burn is total monthly spending, while net burn accounts for any revenue. Understanding and managing burn rate is critical for startup survival, as it directly impacts runway and determines when additional funding is needed.
Formula
Net Burn Rate = Monthly expenses - Monthly revenue
Examples
- 1A startup with $100K monthly expenses and $30K revenue has a $70K net burn
- 2Reducing burn rate by 20% can extend runway by 25%