Home
Back
Burn Rate Formula:
| From: | To: |
The Burn Rate formula calculates the rate at which a company spends its cash reserves, typically measured as monthly operating expenses. It's a crucial metric for startups and businesses to monitor their cash depletion rate and runway.
The calculator uses the Burn Rate formula:
Where:
Explanation: The burn rate represents how quickly a company is spending its available cash reserves. A higher burn rate indicates faster cash depletion, while a lower burn rate suggests better cash preservation.
Details: Calculating burn rate is essential for financial planning, determining runway (how long until cash runs out), making fundraising decisions, and implementing cost-control measures to extend business viability.
Tips: Enter your total monthly operating expenses in your preferred currency. Include all recurring monthly costs such as salaries, rent, utilities, software subscriptions, marketing expenses, and other operational expenditures.
Q1: What is the difference between gross burn rate and net burn rate?
A: Gross burn rate is total monthly cash spending, while net burn rate accounts for revenue (Gross Burn - Revenue). Net burn rate provides a more accurate picture of cash depletion.
Q2: What is a good burn rate for startups?
A: There's no one-size-fits-all answer, but generally startups should aim for a burn rate that gives them 12-18 months of runway before needing additional funding.
Q3: How do I calculate runway from burn rate?
A: Runway = Current Cash Balance ÷ Monthly Burn Rate. This tells you how many months until you run out of cash.
Q4: When should I be concerned about my burn rate?
A: When your runway drops below 6 months, when burn rate exceeds projections significantly, or when you're spending faster than planned milestones justify.
Q5: How can I reduce my burn rate?
A: Strategies include optimizing staffing, renegotiating contracts, reducing non-essential expenses, improving operational efficiency, and focusing on revenue-generating activities.