Burn rate, runway, and why they matter
Burn rate is the speed at which a startup consumes its cash reserves. For pre-revenue or early-revenue companies, it is the single most important operational metric because it determines how long the business can survive before needing new capital or reaching profitability. Every fundraising conversation, every hiring decision, and every strategic priority is ultimately constrained by burn rate and runway.
There are two burn rates. Gross burn rate is the total monthly cash outflow — all expenses paid — regardless of revenue. Net burn rate is gross burn minus revenue, representing the actual cash consumed from reserves each month. A company spending $100,000/month but earning $30,000/month has a gross burn of $100,000 and a net burn of $70,000. Cash runway is calculated using net burn because that is the rate at which the actual cash balance decreases.
The burn rate formulas
Gross burn rate = total monthly cash expenses
Net burn rate = gross burn − monthly revenue
Cash runway (months) = current cash balance ÷ net burn rate
Break-even month: month when revenue ≥ gross burn
With revenue growth: revenue_m = starting_revenue × (1 + growth_rate)^m
Runway with fundraise: add raise amount to cash in fundraise month
Use net burn for runway calculations. Gross burn understates runway for companies with meaningful revenue. Cash runway should always exclude receivables that have not been collected — only collected cash counts. If revenue is growing, the runway calculation becomes non-linear and should be modelled month by month, which is what this calculator does.
Typical startup burn by stage
| Stage | Team size | Typical gross burn | Target runway | Key expense |
|---|
| Pre-seed / solo | 1 – 3 | $5K – $20K/mo | 12 – 18 months | Personal salary |
| Seed | 4 – 10 | $40K – $120K/mo | 18 – 24 months | Salaries (70%+) |
| Series A | 15 – 40 | $150K – $500K/mo | 18 – 24 months | Salaries + S&M |
| Series B | 40 – 100 | $500K – $2M/mo | 18 – 24 months | Salaries + growth |
Extending runway: the levers
When runway is insufficient, there are only four levers: cut costs (reduces gross burn immediately), grow revenue (reduces net burn over time), raise capital (extends runway by adding cash), or some combination. Cost cuts are the fastest and most certain lever — a 20% reduction in burn extends runway by 25% instantly. Revenue growth is slower but compounds over time and does not dilute existing shareholders. Raising capital takes 3 to 8 months and dilutes existing shareholders. The most effective founders use all three levers: cut costs to immediate efficiency, grow revenue aggressively, and raise capital from strength rather than desperation.
Worked examples
Example 1: Pre-revenue startup, 6-month runway warning
Cash: $480,000. Monthly revenue: $0. Gross burn: $80,000/month (salaries $55,000, cloud $6,000, marketing $10,000, office $5,000, other $4,000). Net burn: $80,000/month. Runway: $480,000 / $80,000 = 6 months. Action: at 6 months of runway, fundraising must start immediately. If a Seed round of $1,500,000 closes in month 3, new runway = (480,000 - 3×80,000 + 1,500,000) / 80,000 = 1,740,000 / 80,000 = 21.75 months post-raise.
Example 2: Growing revenue reduces net burn
Cash: $800,000. Gross burn: $100,000/month. Starting revenue: $40,000/month growing at 10%/month. Net burn month 1: $60,000. Month 3 revenue: $40,000 × 1.1^3 = $53,240. Net burn month 3: $46,760. Break-even at revenue = $100,000: $40,000 × 1.1^n = $100,000 ⇒ n = log(2.5)/log(1.1) ≈ 9.6 months. Cash modelled month by month: approximately 16.5 months actual runway despite only 8 months at starting net burn rate.
| Scenario | Cash | Gross burn | Revenue | Net burn | Runway |
|---|
| Pre-revenue (6 mo warning) | $480K | $80K/mo | $0 | $80K/mo | 6 months |
| Growing revenue | $800K | $100K/mo | $40K (10% growth) | $60K declining | ~16.5 months |
| Cut burn 20% | $480K | $64K/mo | $0 | $64K/mo | 7.5 months |
| Post-raise (Seed $1.5M) | $1.74M | $80K/mo | $0 | $80K/mo | 21.75 months |
Frequently Asked Questions
What is the difference between gross and net burn rate?+
Gross burn rate is the total of all monthly cash outflows — every dollar the company spends — regardless of any revenue received. Net burn rate is gross burn minus monthly revenue, representing the actual depletion of the cash reserve each month. For example, a startup spending $90,000/month and earning $30,000/month has a gross burn of $90,000 and a net burn of $60,000. Cash runway should always be calculated using net burn, because $30,000 of revenue offsets $30,000 of expenses, meaning the cash balance only decreases by $60,000 not $90,000. Gross burn is still important because it reveals the total cost structure and what happens to runway if revenue disappears suddenly — a key consideration in stress-testing.
Why does growing revenue make the runway calculation non-linear?+
If revenue is constant, runway is simply cash divided by net burn — a linear calculation. But if revenue is growing each month, the net burn rate decreases over time, meaning cash depletes more slowly each successive month. This makes the correct runway calculation non-linear: you must model it month by month, summing actual net burn each month until cash reaches zero. A company with $600,000 cash, $80,000 gross burn, and $20,000 revenue growing at 15% per month cannot correctly calculate runway as $600,000 / $60,000 = 10 months, because net burn in month 5 is $80,000 minus $20,000 × 1.15^5 = $80,000 minus $40,200 = $39,800. The actual runway in this scenario is approximately 13.5 months — significantly more than the simple formula suggests.
How many months of runway should a startup have?+
The venture capital community generally expects post-round runway of 18 to 24 months. This provides enough time to execute on the milestones needed to raise the next round (12 to 15 months of operating time) plus a buffer for the time it takes to close the next funding round (3 to 6 months). At less than 12 months of runway, a startup should begin exploring fundraising options. At less than 6 months, fundraising is urgent. At less than 3 months, the company should simultaneously pursue emergency cost cuts, bridge financing, and accelerated revenue collection. The absolute minimum to avoid existential risk during a fundraising process is 3 months — the bare minimum to close even a fast moving deal.
What percentage of burn should go to salaries?+
For most early-stage startups, salaries and benefits account for 60% to 80% of gross burn. This is normal and expected — human capital is the primary asset being deployed. At seed stage, the ratio is often even higher (70% to 85%) because the team is small and other infrastructure costs are minimal. As companies scale, sales and marketing spend typically grows as a share of burn (often 20% to 30% at Series A and beyond) while the salary percentage may decrease slightly in relative terms. If salaries are below 50% of burn, the company should examine whether it has bloated non-headcount expenses. If salaries are above 85%, the team may be under-investing in tools, infrastructure, or go-to-market activities needed to accelerate growth.
How do I reduce burn rate without hurting growth?+
The highest-impact, lowest-risk burn reductions are typically found in non-headcount categories first: renegotiating software contracts, consolidating redundant tools, pausing or reducing paid acquisition channels with poor unit economics, subletting unused office space, and deferring non-critical capital expenditure. Headcount reductions produce the largest absolute impact but carry the highest risk to execution capacity and team morale, and should typically be considered only after non-headcount options are exhausted. When headcount reductions are necessary, a single decisive cut is less damaging than multiple small reductions over time — multiple cuts signal ongoing instability. Before any cuts, identify which roles are directly tied to revenue generation or core product delivery, and protect those first.
Should I include accounts receivable in the cash balance?+
No. Cash runway should only count cash and near-cash equivalents that are immediately available: bank accounts, money market funds, and treasury bills. Accounts receivable (invoices sent but not yet collected) should not be included in the cash balance for runway calculations because they may not be collected on time, may be disputed, or may represent customers who are themselves at risk of default. If you have a reliable, short-cycle receivables process (for example, invoices consistently paid within 30 days), you might conservatively include 70% to 80% of current receivables as a footnote to the runway calculation. For annual prepaid SaaS contracts, the deferred revenue cash you have already collected counts as cash on hand. Future annual renewals that have not been invoiced should not be counted.