Gross burn vs net burn: which one actually matters?
Both matter, but they answer different questions. Net burn tells you how long your cash lasts. Gross burn tells you how exposed you are if revenue disappears. If you only track one, track net burn — but understand the other, because investors will ask about both.
TL;DR
- Net burn → runway. Always use net burn to compute months of cash remaining.
- Gross burn → downside risk. It’s what you’d burn if revenue went to zero (customer churn, market freeze, single-customer concentration).
- Higher gross burn with similar net burn = more fragile. A company with $200k gross / $150k revenue is in a different risk class than one with $80k gross / $30k revenue, even if both have $50k net burn.
Definitions
Gross burn = total monthly operating expenses, ignoring revenue. Salaries, rent, software, hosting, contractors, all of it.
Net burn = gross burn − monthly revenue. The number that actually depletes the bank.
If you spend $100k/mo and bring in $30k/mo, gross burn is $100k and net burn is $70k. The bank account loses $70k that month. Full definitions in the glossary.
When gross burn matters
Gross burn is the right number to focus on in three situations:
- Pre-revenue. Net and gross are identical, so the distinction is moot.
- Concentrated revenue. If 80% of your revenue comes from one customer, you should plan around gross burn — losing them turns net burn into gross burn overnight.
- Stress-testing. When modeling downside scenarios (“what if revenue drops 50%?”), gross burn is the ceiling. It’s the worst case.
VCs often ask for gross burn during diligence specifically to understand the downside. A startup with $1M ARR and $200k/mo gross burn is much harder to kill than one with $0 revenue and $200k/mo gross burn — but the ARR has to be durable for that to be true.
When net burn matters
Always, for runway. Runway = cash ÷ net burn. There is no other number you should be dividing cash by. When founders confuse this, they end up either over-conservatively cutting (because they used gross burn to compute runway and panicked) or over-confidently spending (because they assumed net burn would stay low while revenue was actually noisy).
The trap: ignoring revenue volatility
Net burn assumes monthly revenue is stable. It often isn’t, especially at early stages. A startup with three customers paying $10k/month each can lose 33% of revenue with a single churn — and net burn jumps accordingly. The trap is computing runway off a “good month” of revenue, not the realistic floor.
A useful exercise: compute runway twice. Once with current net burn, once with gross burn (the “revenue goes to zero” case). The truth is usually somewhere between, and the gap between the two numbers tells you how much revenue durability is buying you.
Worked example: same net burn, different risk
Two companies, both have $50k net burn. Same runway given equal cash. Are they equally risky?
| Metric | Company A | Company B |
|---|---|---|
| Gross burn | $200,000 / mo | $80,000 / mo |
| Monthly revenue | $150,000 | $30,000 |
| Net burn | $50,000 | $50,000 |
| Cash on hand | $1,000,000 | $1,000,000 |
| Runway (net) | 20 months | 20 months |
| Runway if revenue → $0 | 5 months | 12.5 months |
Same runway on paper. Wildly different downside.
Company A has $150k of monthly revenue propping up a $200k cost base. If a major customer churns, the cost base doesn’t shrink overnight — payroll, rent, and contracts take time to wind down. The runway collapses from 20 months to 5 months if revenue evaporates.
Company B has a smaller revenue line but also a smaller cost base. The same shock — losing all revenue — leaves 12.5 months of runway. Less impressive top-line, much more resilient.
Which company is “better”? Depends on the question. Company A is closer to a real business, with paying customers and proven willingness-to-pay. Company B is more fragile from a revenue perspective but harder to kill financially. A good VC looks at both numbers; a thoughtful founder tracks both.
Run the comparison yourself
Type in Company A’s numbers, note the runway. Now drop revenue to zero and see how the picture changes. The delta is your revenue-dependency risk.