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Burn Rate


What is Burn Rate?

Burn Rate refers to the speed at which you deplete cash reserves before reaching profitability.

How is Burn Rate used?

It helps to measure Runway; the time available for achieving profitability or securing the next round of funding. It's important for managing cash reserves and can inform cost-cutting, investment in growth, hiring, and fundraising timelines.

How to calculate Burn Rate

(Cash at Beginning of Period - Cash at End of Period) / # Months in Period

To calculate Burn Rate, subtract your cash at the end of a period from the cash at the beginning of that period, then divide the result by the number of months in the period.

Best Practices

To reduce Burn Rate, the first step is to do an expense audit: scrutinise all business expenses and cut down on unnecessary costs. Reevaluate all recurring spending including SaaS tools and then focus on creating or improving your expense approval process. This should provide better visibility into expenses.

Common Misconceptions

Don't forget to increase revenue as well as decrease costs. Focus on higher-margin products and customer segments with the greatest LTV:CAC. Try to drive up-sells and cross-sells to maximise ARPC and explore new revenue streams through new products, services, or market segments.

“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.”

Peter Drucker
Father of Management

"When companies talk about burn rates, two things are burning: money and people. One you’re burning up, one you’re burning out."

Jason Fried
CEO, Basecamp


What are the main drivers of Burn Rate?
  • Payroll spend
  • SaaS spend
  • Cloud spend
  • Revenue

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