Burn rate is the speed at which your company spends its cash, measured per month. If the bank account goes down by €20,000 a month, your burn rate is €20,000. It is the most important number in an unprofitable company, because dividing your cash by it produces the only deadline that cannot be negotiated: the month the money ends.
The word sounds dramatic. The concept is kitchen-table simple: what does this company lose per month, and how long can it keep doing that? Get it right and every other number, runway, hiring budget, fundraise size, falls out of it. Get it wrong and everything downstream is fiction.
The burn rate formula: gross vs net
Burn comes in two flavors, and mixing them up is the most common burn mistake.
Gross burn is everything you spend in a month, regardless of what comes in:
gross burn = salaries + taxes + rent + software + ads + cloud + everything else
This is your cost of existing, and it is the number that does not care about revenue having a bad month. If revenue went to zero tomorrow, gross burn is what you would still be paying.
Net burn is what you actually lose after revenue comes in:
net burn = total monthly spending - monthly cash revenue
A company with €60,000 gross burn and €55,000 of monthly cash revenue has a net burn of €5,000 and can survive on modest cash for years. A company with €25,000 gross burn and zero revenue is in far more danger despite spending less than half as much. Net burn is the number that empties the bank account, so it is the one runway is built on. Gross burn is the size of your risk if revenue disappeared. You need both.
A worked example
| Amount | |
|---|---|
| Team (salaries + employer costs) | €49,300 |
| Marketing | €5,200 |
| Cloud and software | €2,000 |
| Gross burn | €56,500 |
| Cash revenue per month | €41,000 |
| Net burn | €15,500 |
| Cash in bank | €184,000 |
| Runway | 11.9 months |
Every line is cash that actually moved. €41,000 came in against €56,500 going out, so €15,500 leaves the account each month, and €184,000 of cash covers that for just under a year.
How do you calculate runway from burn rate?
Divide the cash in your bank by your monthly net burn, and the result is your runway in months. Runway is burn's twin:
runway (months) = cash in bank / monthly net burn
€120,000 in the bank at €15,000 net burn is 8 months of runway. Because burn moves month to month, compute it on a 3-month average rather than one month's snapshot, and recompute when anything changes: a hire, a price change, a churned customer. The full method is in when will you run out of cash, and the free burn rate calculator does the division from your own numbers, no signup.
What is a normal burn rate?
There is no universal number; a seed-stage SaaS in Berlin and a hardware company in fund-raising mode live in different worlds. The useful benchmarks are relative:
- Pre-revenue: burn is your entire spend, so the question is coverage: 18+ months of runway is comfortable, under 12 means fundraising or cutting is your actual job this quarter.
- Early revenue: the test is direction. Burn that shrinks as MRR grows means the model works. Burn that grows as fast as revenue means you are buying growth, which is fine only if it is deliberate.
- Growth stage: investors read efficiency, not size, through the burn multiple: how much you burn per euro of new recurring revenue.
Behind all three stages sits one universal test: does your burn buy growth faster than it consumes runway? If you burn €15,000 a month and add €3,000 of new MRR each month, the math is working. If you burn €15,000 and revenue is flat, you are converting cash into time, and you should be able to say what that time is for. "We burn €25k to ship the enterprise product by March" is a plan. "We burn €25k because that is what we spend" is drift.
The four classic mistakes
1. Counting bookings as revenue. A signed deal is not cash. If the customer pays in 45 days, that money belongs to a future month. Burn is about the bank account, not the CRM.
2. Using last month instead of an average. One month always lies. A quarterly software renewal or a delayed invoice can swing a single month 30% in either direction. Average the last three months, and separately list anything that bills annually.
3. Forgetting employer costs. A €5,000 gross salary is not €5,000 of burn. With employer taxes and contributions it is typically 1.2 to 1.4 times that, depending on your country. Always compute burn from the full cost of employment, not the number in the offer letter.
4. Treating burn as fixed. Burn is a decision, not a weather condition. Every hire, every committed plan, every price change moves it. When you model a decision, model it into your burn first and look at the new runway before you say yes.
Three ways to lower burn, in order
- Cut what nobody would miss. Unused tools, duplicate subscriptions, oversized cloud instances. This is found money; the method is in cutting costs without cutting muscle.
- Raise the revenue side. Net burn falls when cash revenue rises: raising prices and collecting invoices faster both lower burn without touching a single cost.
- Slow the big commitments. Hiring is the burn decision; one salary is worth fifty subscriptions. Price every hire at its true loaded cost before the offer goes out.
Track it live, not quarterly
Burn is a monthly number that changes with every commitment, so it belongs on a dashboard, not in a quarterly spreadsheet ritual. Record what happens, salaries, subscriptions, revenue, one-offs, and let the number stay current; that is exactly what Plainhub does, with the runway date sitting next to it. And once the burn figure is trustworthy, the next question is where the balance goes from here — that projection is the job of cash forecasting software, where we compared eight options honestly, ours included. However you track it, the founder rule is the same: know your burn the way you know your rent, without looking it up.