# What is burn rate? > **Burn rate:** Burn rate is the speed at which a company uses up its cash, usually stated per month. Gross burn is all cash spent; net burn is cash spent minus cash received. - Source: https://ai-presentations.com/glossary/burn-rate/ - Updated: 21 October 2026 - Language: English - German version: https://ai-presentations.com/de/glossar/burn-rate/ Also called: cash burn, monthly burn **Burn rate** is how fast a company spends its cash, usually measured per month. It matters most for companies that spend more than they earn, because it decides how long the money lasts. Two versions are in use: - **Gross burn** is all the cash going out in a month: salaries, rent, software, marketing, taxes and so on. - **Net burn** is cash out minus cash in. It is the amount by which the cash balance falls each month. **Net burn = cash spent − cash received** "Burn rate" without a qualifier usually means net burn. ## A worked example A software company spends €216,000 a month (gross burn) and collects about €91,000 a month from customers, which is its ARR of €1.09m divided by 12. - **Net burn:** €216,000 − €91,000 = €125,000 a month, or €1.5m a year. - **Runway:** with €2.5m in the bank, €2,500,000 ÷ €125,000 = 20 months. Investors also relate burn to growth with the **burn multiple**: net burn divided by net new ARR over the same period. If the €1.5m of yearly burn buys €829,500 of net new ARR, the burn multiple is €1.5m ÷ €0.83m = 1.8. Each euro of new ARR cost €1.80 of net burn. Lower is better. The burn multiple uses the net burn of the last twelve months (here €1.5m), while runway uses the current monthly figure (€125,000). ## How to show burn 1. **Show net burn per month** next to the cash balance, so the reader sees both the speed and the tank. 2. **Use an average of the last three months,** not one unusually good or bad month. 3. **Say what is excluded,** for example one-time inflows such as the funding round. 4. **Pair burn with runway.** A burn figure alone does not say whether the money lasts. 5. **Explain changes.** A planned rise from hiring is a different message than an unplanned one. ## Typical mistakes - **Mixing up gross and net burn,** or not saying which one you mean. - **Treating a lucky month as the burn rate.** - **Forgetting lumpy payments,** such as annual licenses or tax payments, so burn looks lower than it is. - **Confusing burn with the loss in the accounts.** Burn is about cash. The income statement also contains non-cash items such as depreciation. - **Showing burn without the growth it buys.** Burn only becomes meaningful next to the cash that is left, which is [runway](https://ai-presentations.com/glossary/runway/), and next to the revenue base, which is [ARR](https://ai-presentations.com/glossary/arr/). Report both in your [investor update](https://ai-presentations.com/templates/investor-update/). ## Frequently asked questions ### What is the difference between gross burn and net burn? Gross burn is all the cash a company spends in a month. Net burn is gross burn minus the cash it receives from customers, so it is the amount the bank balance actually falls. Net burn is the figure used to calculate runway. ### How do you calculate burn rate? Subtract cash received from cash spent over a period and divide by the number of months. As a check, take the cash balance at the start minus the balance at the end, divided by the months, leaving out money raised from investors or lenders. ### What is a good burn rate? No burn rate is good on its own. Judge it against the cash in the bank, which gives the runway, and against the growth it buys, for example with the burn multiple. ### What is the burn multiple? The burn multiple is net burn divided by net new ARR over the same period. It shows how many euros of net burn it takes to add one euro of ARR. In the example it is 1.8. ## Related pages - [Runway](https://ai-presentations.com/glossary/runway/): Runway is the number of months a company can keep operating before its cash runs out. See the formula, a worked example and how to show runway to investors. - [ARR](https://ai-presentations.com/glossary/arr/): ARR is the yearly value of a company's recurring subscription revenue at a point in time. Learn the formula, what counts and see a worked ARR roll-forward. - [Unit economics](https://ai-presentations.com/glossary/unit-economics/): Unit economics show whether one customer earns more than it costs to win and serve. Learn the core metrics, the formulas and a worked example you can copy. - [CAC](https://ai-presentations.com/glossary/cac/): CAC is what it costs on average to win one new customer: sales and marketing spend divided by new customers. Learn the formula, what to include and an example. - [Investor update](https://ai-presentations.com/templates/investor-update/): An investor update template with 9 slides: summary, metrics, ARR bridge, plan against actual, lessons, cash and runway, next-quarter plan and asks. - [Pitch deck](https://ai-presentations.com/templates/pitch-deck/): Ten slides for a seed round: problem, solution, market, traction, unit economics, competition, team and the ask. A pitch deck template with a worked example. --- ai-presentations.com is published by Slaide (https://www.slaide.de), a sole proprietorship run by Nathalie Scholl in Heilbronn, Germany. [How this site is written, checked and corrected](https://ai-presentations.com/editorial-policy/).