What is Burn Rate?

Burn rate is the speed at which your company spends money. Most often it means net burn — the cash you lose each month after subtracting any revenue from your total expenses. If you spend $40,000 and earn $15,000 in a month, your net burn is $25,000.

Burn rate and runway are two sides of the same coin: your burn rate determines how fast your runway shrinks. Watching burn closely is how founders stay in control of their company's survival.

Gross burn vs. net burn

It's worth knowing both numbers. Gross burn is your total monthly spend regardless of income. Net burn subtracts revenue, showing the real hit to your bank balance. As revenue grows, net burn falls even if gross burn stays flat.

• Gross burn: total monthly cash going out the door.
• Net burn: gross burn minus monthly revenue — the number that drives runway.
• Payroll is usually the largest component of burn for most startups.

Why burn rate matters for validation

Keeping burn low during the validation stage is how you buy more attempts. Every dollar you don't spend extends your runway and gives you another month to find product-market fit. Founders who validate cheaply — manual MVPs, small experiments, lean teams — can test far more ideas before the money runs out than those who scale spending too early.