Burn rate is the rate at which a pre-profitability business spends its cash reserves — typically expressed as net cash outflow per month. A business 'burning $50K/month' with $600K in the bank has 12 months of runway. Burn rate and runway are the most watched metrics for venture-backed startups.
Burn rate measures cash consumption velocity. Two forms: (1) Gross burn — total monthly cash outflows (all operating expenses) before any revenue. (2) Net burn — monthly cash outflows minus monthly revenue; the actual monthly decrease in cash reserves. For a company with $100K in monthly expenses and $40K in monthly revenue, gross burn is $100K, net burn is $60K. Runway = Total Cash / Net Monthly Burn Rate. A company with $1.2M cash and $100K net monthly burn has 12 months of runway — the amount of time before it runs out of money without raising additional capital or reaching profitability. Burn rate is a critical venture and lender metric: (1) For VCs, burn rate determines when the company needs its next funding round. A standard rule: raise the next round before you have less than 6 months of runway. (2) For lenders: a business in the pre-profitability stage seeking revenue-based financing or venture debt must demonstrate a path to profitability or a credible fundraising timeline before burn rate consumes the collateral. (3) For the founder: burn rate is the primary cash-flow management variable. Every dollar of reduced burn extends runway without raising capital. Burn rate by stage benchmarks vary enormously — a pre-revenue startup at $20K/month net burn is very different from a Series B company at $500K/month. What matters is whether the business is trending toward lower burn (improving unit economics) or higher burn without proportional revenue growth.
There is no universally 'good' burn rate — it depends on stage, sector, and capital efficiency. What matters more is burn multiple: how many dollars the company burns per dollar of net new ARR gained. A burn multiple below 1.5x is generally considered efficient; above 2.0x is concerning in today's capital-efficient environment. Maintain at least 12-18 months of runway at all times to avoid emergency fundraising at unfavorable terms.
The fastest levers: (1) Payroll — typically 50-70% of cash burn for tech startups; lay off or freeze hiring to stop the largest variable. (2) Marketing spend — pause performance marketing with poor ROAS. (3) Tooling/SaaS subscriptions — audit and cut unused or low-value software. (4) Office/real estate — sublease or exit leases if remote work is viable. Revenue increases reduce net burn but take longer to execute than expense cuts.
Burn rate is a simplified snapshot: net cash outflow per month assuming stable operations. Cash flow is a more complete picture from financial statements (operating, investing, financing activities). A company can have positive operating cash flow but negative total cash flow from investing activities (heavy equipment purchases). For startup analysis, net burn rate is the most useful single number; for mature business analysis, full cash flow statements are more informative.