Net burn
net burn
Monthly cash spending minus monthly revenue. The actual rate at which your bank account is shrinking. The number that determines runway.
Net burn is gross burn minus revenue. It is the actual amount your bank account shrinks each month. A company spending $500k/month and earning $200k/month has a net burn of $300k/month.
Net burn is the number that determines your runway. Cash balance divided by net burn equals months until the money runs out. It is the most important financial metric at any pre-profitable startup.
A negative net burn means you are profitable, your bank account is growing. A near-zero net burn means you are at breakeven. A positive net burn means you are losing cash. The goal of most venture-backed startups is to keep net burn at a level that gives 18-24 months of runway while growing fast enough to justify the next fundraise.
Examples
Calculating net burn and runway.
Gross burn: $400k/month. Revenue: $150k/month. Net burn: $250k/month. Cash in bank: $5M. Runway: 20 months. The CEO tells the board they have 20 months to either reach profitability or raise another round.
Net burn approaches zero.
A company's net burn dropped from $300k/month to $50k/month over 12 months as revenue grew from $100k to $350k on a $400k cost base. At this trajectory, they will be net-burn-negative (profitable) in three months. The CFO recommends not raising another round.
A spike in net burn after investment.
Net burn was $100k/month. The company hires 10 salespeople and launches a $50k/month ad campaign. Net burn jumps to $350k/month. Revenue has not moved yet because sales hires take 6-9 months to ramp. For the next two quarters, the company is burning more cash to invest in growth. This is a deliberate, planned increase.
In practice
Read more on the blog
Frequently asked questions
What is a healthy net burn for a startup?
One that gives you 18-24 months of runway at your current cash balance. The absolute number varies by stage: a seed-stage company might have $50k/month net burn, while a Series C company might have $1M/month. The runway, not the absolute number, is what matters.
Should I report net burn to investors?
Yes. Include it in every board deck and investor update. Report both gross burn and net burn, with a trend line. Investors want to see net burn decreasing over time as revenue grows. If net burn is increasing, explain why (planned investment) and when it will start declining (specific milestone or timeline).
Related terms
Total monthly cash expenditure before any revenue. Every dollar that leaves the company's bank account.
How fast a startup spends cash each month. Gross burn is total spending. Net burn subtracts revenue. The clock on your runway.
How many months a startup can operate before running out of cash. Cash in the bank divided by monthly net burn.
The actual movement of cash in and out of your business. Different from revenue because it includes timing of payments, not just accrual accounting.
Want the complete playbook?
Picks and Shovels is the definitive guide to developer marketing. Amazon #1 bestseller with practical strategies from 30 years of marketing to developers.