How to calculate startup burn rate (with a worked example)

Burn rate is how much cash your startup spends each month. There are two versions — gross burn and net burn — and the math is straightforward. The hard part is being honest about which expenses count and what your revenue actually looks like in a normal month.

What is burn rate?

Burn rate is a monthly number. It answers: “If we keep operating like this, how fast does our bank balance shrink?” It is not the same as cost of goods sold, operating loss, or anything else from your P&L. Burn rate is a cash concept — what physically leaves the bank account each month.

Two flavors:

• Gross burn — total monthly expenses, ignoring revenue.
• Net burn — monthly expenses minus monthly revenue.

Net burn is the one that determines runway. Gross burn matters for understanding your cost base and stress-testing what happens if revenue goes to zero. See the glossary for crisper definitions.

The formula

gross burn = sum of monthly operating expenses
net burn   = gross burn − monthly revenue
runway     = cash on hand ÷ net burn

“Operating expenses” should include everything that hits the bank account: payroll (loaded — salary + benefits + payroll tax), rent, software subscriptions, contractor invoices, hosting, legal retainers, accounting, marketing spend. Exclude one-time costs (a $20k legal bill for incorporation) — those distort the monthly figure. Either amortize them across the year or treat them as a separate line.

“Monthly revenue” means collected revenue, not bookings or ARR ÷ 12. If a customer signs an annual contract for $120k in January, that’s $120k of cash in January, not $10k/month. For runway math, cash is what matters.

Worked example: a $1.5M seed startup

Imagine a typical seed-stage company that just closed a $1.5M round:

• Cash on hand: $1,500,000
• Team: 4 engineers + 2 founders, no other employees
• Monthly payroll (loaded): 4 × $12,500 + 2 × $7,500 = $65,000
• Rent, software, hosting, misc: $15,000
• Monthly revenue: $5,000 (a handful of design-partner contracts)

Step 1 — gross burn:

gross burn = $65,000 + $15,000 = $80,000

Step 2 — net burn:

net burn = $80,000 − $5,000 = $75,000

Step 3 — runway:

runway = $1,500,000 ÷ $75,000 = 20 months

Twenty months of runway. That’s in the healthy zone for a seed startup (the target is 18–24 months post-raise). If revenue stays flat and expenses don’t change, this company runs out of cash 20 months from now.

But revenue rarely stays flat. If this company is growing revenue at 15% month-over-month, the picture changes — the calculator’s simulation iterates month-by-month, compounds the revenue growth, and tells you whether you hit breakeven before zero. See the methodology for the exact loop.

What the number means

Twenty months of runway sounds comfortable, but founders should think in terms of when do I need to start fundraising again? Seed-to-Series A raises typically take 3–6 months from “let’s start” to “money wired.” That means at 20 months of runway, you have roughly 14–17 months of operating time before you need to be in active fundraise mode.

A useful rule: subtract 6 months from your runway to get your real planning horizon. With 20 months of runway, plan for 14 months of execution, then 6 months of raising. If the execution period isn’t enough to hit your Series A milestones, the plan needs adjustment now, not later.

Run this scenario

Want to play with the numbers? Run this scenario in the calculator →

Move the growth slider and watch the runway extend. Add hires and watch it contract. The whole point of the tool is to make these trade-offs visceral instead of abstract.