How much cash the company consumes each month. Net burn — spending minus income — is the figure that matters, because it is what actually shortens the runway.
Why it matters
Burn rate answers a plain question — how much cash is the company using up each month — and the
plain question turns out to matter more than almost any other for a company that has not yet
reached profitability. It is the number that sets the clock on everything else: how long the
company has before it must raise again, sell, or change how it operates.
The distinction between gross and net burn is where most confusion happens. Gross burn is total
spending. Net burn is spending minus whatever revenue or other income comes in during the same
period, and net burn is the figure that actually determines how fast the bank balance falls. A
company can grow revenue quickly while its net burn stays roughly flat, if spending is growing at
close to the same pace — that is a different, more sustainable story than one where burn is
climbing regardless of revenue.
How it works
Net burn is calculated as cash out minus cash in over a period, usually a month. It is the
number that connects directly to runway: divide the current cash balance by net burn and the
result is how many months remain at the current rate.
Gross burn is simply total cash spent, with no netting against revenue. It is useful for
understanding cost structure and where the money goes, but it overstates the urgency of the
situation for any company generating meaningful revenue, because it ignores the cash coming in
that offsets it.
The trend matters as much as the level. A burn rate that is rising because the company is
deliberately investing in growth is a different situation from one rising because costs are
drifting up without a corresponding plan. Reading burn alongside revenue growth and the reason
behind any recent change in spending is what separates the two.
One-off items distort a single month badly. A large one-time hire cost, a lump payment to a
vendor, or a one-off legal expense can spike a single month's burn without reflecting the ongoing
rate — which is why burn is usually read as a trailing average across several months rather than
from any one month alone.
On GetDeal
Cash position and burn are among the figures a listing's Deep Dive tab presents to buyers and
investors, and the AI analysis report reads them when it builds its valuation range and
per-section confidence — a company still burning cash reads differently in that report than one
already profitable, even at a similar revenue figure.
Raise or sell your AI startupthe in-product glossary — the same definitions, alongside your deals
Questions people ask
- What is the difference between gross burn and net burn?
- Gross burn is total cash spent in a period with no offset. Net burn subtracts whatever revenue or other cash came in during that same period, so it reflects the actual net drop in the bank balance. Net burn is the figure that determines runway, because it is the rate at which cash is genuinely being consumed once incoming money is accounted for.
- Why might burn rate rise even as a company grows revenue?
- Because spending on hiring, infrastructure or sales and marketing can grow faster than revenue does, particularly during a deliberate push to scale. Rising revenue does not automatically mean burn is under control; the two need to be read together, since a company can be growing quickly and still burning cash faster than before if spending is outrunning the new revenue.
- Why is a single month a poor way to read burn rate?
- Because one-off costs, such as a large hiring push, a lump vendor payment or a one-time legal bill, can spike or dip a single month’s figure without reflecting the ongoing rate of spending. Burn is usually more reliable read as a trailing average across several months, which smooths out those one-off events and shows the underlying trend instead.
See also
More in Metrics
- ARR — The annualised value of subscription revenue that repeats — contracted and expected to continue.
- CAC — What it costs, on average, to win one customer — sales and marketing spend divided by customers gained.
- Churn — The rate at which customers or their revenue leave.
- EBITDA — A measure of operating profit that strips out financing, tax and accounting charges for past spending, so two businesses can be compared on how well the operations themselves earn..
- Gross margin — What is left of revenue after the direct cost of delivering the product.
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Updated 2026-09-09