"What's your burn rate?" — Every investor asks this question. Your burn rate is your startup's financial pulse. This guide explains how to calculate it, optimize it, and avoid running out of cash.
📌 What you'll learn:
- ✅ What is burn rate (gross vs net)
- ✅ How to calculate your burn rate accurately
- ✅ Benchmarks by stage (Pre-Seed, Seed, Series A)
- ✅ How to calculate your runway
- ✅ 7 strategies to reduce burn rate
What is Burn Rate?
Burn rate measures how much money your startup spends each month. It's the speed at which you're "burning" through your cash reserves.
"Cash is king. Without it, you're dead."
— Every startup in survival mode
Gross Burn vs Net Burn: The Critical Difference
🔴 Gross Burn Rate
All your monthly expenses, period.
Gross Burn = Total expenses/month
Example: $50,000/month
🟢 Net Burn Rate
Expenses MINUS revenue. This is what really matters.
Net Burn = Expenses - Revenue
Example: $50K - $15K = $35,000/month
How to Calculate Your Burn Rate
// Net Burn Rate Formula
Net Burn = Total Monthly Expenses - Monthly Revenue
// Example:
Expenses: $50,000 | Revenue: $15,000
Net Burn = $50,000 - $15,000 = $35,000/month
From Burn Rate to Runway
// Runway Formula
Runway (months) = Cash Balance / Net Burn Rate
$500,000 / $35,000 = 14.3 months
⚠️ Runway Rules
- 🟢 18-24 months: Comfort zone after a raise
- 🟡 12-18 months: Start preparing your next raise
- 🟠 6-12 months: Urgent - start fundraising NOW
- 🔴 < 6 months: Survival mode
Burn Rate Benchmarks by Stage
| Stage | Typical Burn | Team |
|---|---|---|
| Pre-Seed | $5-15K/mo | 1-2 founders |
| Seed | $20-50K/mo | 3-8 people |
| Series A | $80-200K/mo | 15-30 people |
| Series B+ | $300K-1M/mo | 50+ people |
7 Strategies to Reduce Burn Rate
1. 🏠 Go remote-first
Save $500-1000/person/month on office costs.
2. 💰 Negotiate annual contracts
Get 20-40% discounts from AWS, HubSpot, etc.
3. 🤖 Automate before hiring
Tools cost $50-500/mo vs $5-8K/mo for employees.
4. 📊 Audit your SaaS stack
Average waste is 30%. Clean house.
5. 💵 Offer annual billing
Get 10 months cash upfront, extend runway.
6. 🌍 Hire internationally
Senior dev: $180K in SF vs $80K in Portugal.
7. 📈 Raise your prices
+20% price = -20% net burn (if no churn).
Burn Multiple: The VC Metric
// Burn Multiple = Net Burn / Net New ARR
$150K burn / $100K new ARR = 1.5x
- 🟢 < 1x: Excellent
- 🔵 1-2x: Good
- 🟡 2-3x: Acceptable early stage
- 🔴 > 3x: Problem
🔥 Calculate Your Burn Rate Automatically
CharliA generates your financial model with burn rate, runway and 5-year projections.
Try CharliA Free →