What is Burn Rate?Burn rate is the pace at which a company spends its cash reserves in excess of revenue, typically measured monthly. Gross burn rate = total monthly operating expenses. Net burn rate = gross burn rate minus monthly revenue. A company spending $500,000/month with $200,000/month in revenue has a net burn rate
What is Burn Rate?
Burn rate is the pace at which a company spends its cash reserves in excess of revenue, typically measured monthly. Gross burn rate = total monthly operating expenses. Net burn rate = gross burn rate minus monthly revenue. A company spending $500,000/month with $200,000/month in revenue has a net burn rate of $300,000/month. Burn rate is the primary metric for assessing how long a company can survive without additional funding, paired with cash on hand to calculate runway: Runway (months) = Cash on Hand / Monthly Net Burn.
Managing Burn Rate for SaaS Growth Stage Companies
Burn rate management involves balancing growth investment against cash preservation. High burn rates are often justified during hypergrowth phases when every additional dollar of sales and marketing spend generates strong returns (high Magic Number). Unsustainable burn occurs when: growth is slowing while burn remains constant (declining growth efficiency), runway falls below 12-18 months without a clear path to funding or profitability, or burn multiple rises above 2-3x indicating poor capital efficiency. Investors evaluate burn rate not in isolation but in context of growth rate and efficiency metrics.
Frequently Asked Questions
What is a healthy burn rate for a Series B SaaS company?
Healthy burn rate guidance by stage: Seed ($500K-$2M): $50K-$150K/month net burn, building toward first revenue. Series A ($2M-$10M ARR): $200K-$600K/month net burn with rapidly improving Magic Number. Series B ($10M-$50M ARR): $500K-$2M/month net burn targeting 12-18 month runway and path to profitability. The absolute dollar amount is less important than the efficiency ratio (burn multiple below 1.5x for Series B stage) and runway (minimum 12 months comfort, ideally 18-24 months before next raise). Companies with burn multiples above 3x at Series B face difficult fundraising environments regardless of ARR growth rate.
How do I calculate my startup runway?
Runway calculation: divide your current cash and liquid assets by your monthly net burn rate. If you have $4M in cash and burn $400K/month net, you have 10 months of runway. Model different scenarios: current burn rate baseline, optimistic scenario (burn decreases as revenue grows faster), and downside scenario (revenue growth slows, requiring burn reduction). For fundraising planning: begin your next raise when you have 12-18 months of runway remaining, not when you have 3-6 months remaining. Fundraising typically takes 3-6 months, and running a fundraise under cash pressure significantly weakens your negotiating position.