Glossary
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.
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
- Show net burn per month next to the cash balance, so the reader sees both the speed and the tank.
- Use an average of the last three months, not one unusually good or bad month.
- Say what is excluded, for example one-time inflows such as the funding round.
- Pair burn with runway. A burn figure alone does not say whether the money lasts.
- 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, and next to the revenue base, which is ARR. Report both in your investor update.
FAQ
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.
Keep reading
Investor and fundraising
- TemplateBusiness plan
A business plan presentation template with 10 slides: summary, problem, customers, model, revenue, profit and loss, use of funds, milestones and the ask.
- GuideElevator pitch examples
Eight fictional elevator pitch examples for founders, consultants, freelancers, job seekers and internal projects, each as a 30 and a 60-second version.
- Free toolPitch deck checklist
Free pitch deck checklist for pre-seed, seed and Series A: tick off what each slide must answer, see your progress and turn the gaps into a brief for your deck.
- GlossaryTAM, SAM, SOM
TAM, SAM and SOM size a market in three steps: everyone who could buy, the part you can serve and the share you can win. Definitions and a worked example.
- SolutionAI presentations for startups
How startups use AI for a pitch deck, investor updates, a business plan and board updates, with Excel financial plans built on formulas.
- Free toolElevator pitch builder
Free elevator pitch generator: fill in six parts and get a 30, 60 and 90 second version with word count, speaking time and a copy button. Runs in your browser.
Where to go next
- ConvertBuild a deck from your workbook figures
The AI draws the charts from your figures, and you change the numbers later in the editor.
- ProductTurn the brief into a report or one-pager
The AI writes the pages; you approve the plan and export Word or PDF.
Less theory, more finished slides
Describe the deck you need. The AI plans, writes and designs it, and hands you an editable PowerPoint.
Build your first deck freeFree plan, no card needed