Sign up for
Get started

What is burn rate?

Definition: A burn rate is a rate at which a company uses its cash to fund its operations. The amount of money a company spends each month relative to its net revenues or sales determines how quickly it will run out of cash. 

Understanding and monitoring a business’s burn rate is an important aspect of proper financial management.

Burn rate formula

To calculate a company’s burn rate, simply divide the total amount of money it spent in a given month by its net revenues for that month

For example, if a business spends $20,000 on operations and earns $40,000 in sales during a certain month, its burn rate is 50%, or 20 divided by 40.

Factors affecting the burn rate

There are several factors that can influence a company’s burn rate. One of the most important is the type of product it offers

The higher-priced or more complex a product is, the longer its development process will be and the more money it will cost to manufacture and/or market it. 

Another factor is the company’s capacity to handle large amounts of cash. Some businesses are better equipped for growth than others, as they have access to greater financial resources or can organize themselves more effectively to manage their funds.

Gross burn rate vs. Net burn rate

The gross burn rate is the amount of money a company spends each month on all its operations and fixed costs, such as payroll and rent. 

The net burn rate subtracts any revenue earned during that month from the gross burn rate to provide an estimate of how much cash the business is actually losing. 

This figure can give investors and other stakeholders an idea of how quickly the company’s cash reserves will be depleted, thereby revealing possible problems with its long-term financial health.

Wonder what your customers want?
Discover Mindmesh

Article FAQs

What are the two key metrics in a startup’s burn rate?
The two key metrics in a startup’s burn rate are the cost of growth and unit economics. Cost of growth refers to the total amount of money a company spends each month. Unit economics measures how much revenue a company generates for every dollar it spends, or its “revenue per unit” (RPU).
Is a high burn rate bad?
There is no definitive answer to this question, as the optimal burn rate will depend on various factors. A high burn rate can be problematic, but some startups may need to spend more to achieve fast growth and gain a competitive advantage.

Recommended Terms


Get started

Hundreds of tech workers have already
tried Mindmesh and use it daily

Get Started

A monthly newsletter delivered straight to your inbox