Glossary · Finance
What is Burn Rate?
Definition
Burn rate is the amount of cash your business spends each month in excess of the cash it brings in.
Net burn rate = monthly expenses − monthly revenue
Why it matters
Gross burn is total monthly spending, while net burn subtracts monthly revenue. Net burn is the number that decides how long your savings will last.
A new online course business spends $2,800 a month on software, ads, and contractors and earns $1,300 in sales. Net burn is $1,500 a month. With $9,000 saved, the founder knows there are six months to improve sales or cut costs.
Watch burn as closely as revenue. A business can grow quickly and still be in danger if spending grows faster than income.
Common mistakes
- !Ignoring small recurring subscriptions that add up to hundreds of dollars a month.
- !Increasing spending after one good month before sales prove stable.
Frequently asked questions
What is Burn Rate?
Burn rate is the amount of cash your business spends each month in excess of the cash it brings in.
How do you calculate Burn Rate?
Net burn rate = monthly expenses − monthly revenue
What mistakes do beginners make with Burn Rate?
Ignoring small recurring subscriptions that add up to hundreds of dollars a month. Increasing spending after one good month before sales prove stable.
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