Business
What is Burn Rate?
Burn rate is how much money a startup spends per month beyond what it earns. It measures the rate at which the company uses up cash reserves.
Definition
Burn rate is the rate at which a company spends money in excess of income. Gross burn is total monthly spending; net burn is spending minus revenue. A company with 100k monthly expenses and 30k monthly revenue has a net burn of 70k. Burn rate determines runway and is closely monitored by founders and investors. High burn can lead to rapid growth but also rapid failure if funding runs out.
Key Points
- Gross burn: total monthly spending
- Net burn: spending minus revenue
- Determines runway length
- Should decrease as revenue grows
- Investors scrutinize burn efficiency
Examples
- 1.100k monthly costs, 30k revenue = 70k net burn
- 2.Reducing burn from 80k to 50k to extend runway
- 3.High burn justified by high growth rate
Frequently Asked Questions
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