Definition
Burn rate is how quickly a company uses its cash. Gross burn is total monthly spending; net burn is spending minus revenue, the amount by which cash falls each month.
Formula
Net burn = cash at the start of the month − cash at the end of the month (when there are no financing events).
Runway = cash in the bank ÷ net burn, in months.
Example
A startup with $1.2 million in the bank and a net burn of $100,000 a month has 12 months of runway.
Why it matters
Burn rate decides how long a company has to reach its next milestone. Product decisions affect it through hosting costs, team size and the revenue the product earns.