Burn Rate
What is Burn Rate?
Burn rate is the rate at which a company spends its cash reserves before generating positive cash flow from operations. For B2B SaaS companies, burn rate measures how quickly a business is consuming capital, typically expressed as a monthly figure representing net cash outflow.
Understanding burn rate is critical for startup founders, CFOs, and investors because it directly determines a company's runway—the amount of time remaining before the business runs out of money. In the SaaS ecosystem, burn rate must be balanced against customer acquisition costs, growth velocity, and the path to profitability. A high burn rate isn't inherently negative if it's fueling sustainable growth and revenue expansion, but uncontrolled spending without corresponding growth signals can lead to cash crises.
Burn rate became particularly prominent during the dot-com boom and subsequent bust when many startups with massive cash reserves burned through funding without achieving sustainable business models. Today, it remains one of the most closely monitored metrics by venture capitalists and boards, especially during economic downturns when capital becomes scarce and the focus shifts from "growth at all costs" to "efficient growth."
Key Takeaways
Financial Sustainability Indicator: Burn rate reveals how long your company can operate before needing additional funding or reaching profitability
Growth vs. Efficiency Balance: While high burn can signal aggressive growth investment, it must be justified by corresponding revenue growth and unit economics
Investor Scrutiny Metric: VCs and boards closely monitor burn rate trends to assess management discipline and capital efficiency
Runway Calculation Foundation: Knowing your burn rate enables accurate runway forecasting, which is essential for fundraising timing decisions
Market Condition Dependent: Acceptable burn rates vary dramatically based on growth stage, market conditions, and capital availability
How It Works
Burn rate calculation involves tracking all cash outflows minus cash inflows over a specific period, typically monthly. The most common approach measures net burn rate, though some companies also track gross burn rate.
Gross Burn Rate represents total monthly operating expenses without considering revenue. This figure includes all fixed and variable costs: salaries, office rent, software subscriptions, marketing spend, hosting infrastructure, and other operational expenses. Gross burn shows the total cost of running the business regardless of income.
Net Burn Rate calculates the actual monthly cash decrease by subtracting revenue from total expenses. This is the more strategically relevant metric because it accounts for the business's ability to generate income while spending. A company with $500K in monthly expenses and $200K in monthly revenue has a net burn rate of $300K.
The relationship between burn rate and revenue growth determines burn efficiency. A company burning $500K monthly while growing revenue by $100K each month demonstrates better capital efficiency than one burning the same amount with only $25K in monthly revenue growth. This relationship is captured in metrics like the CAC Payback Period and growth efficiency ratios.
Runway is calculated by dividing current cash reserves by net burn rate. With $3M in the bank and $300K monthly net burn, a company has a 10-month runway. This timeline creates urgency around fundraising (typically initiated when 6-9 months of runway remains) or reaching cash flow breakeven.
Key Features
Time-based measurement expressed monthly or annually for consistent tracking and comparison
Cash-focused metric distinct from profitability, emphasizing actual cash position rather than accrual accounting
Leading indicator of financial health that signals potential cash crises months before they occur
Context-dependent benchmarks where acceptable levels vary by growth stage, industry, and funding environment
Directly tied to runway providing actionable timeline for strategic decisions around fundraising and cost management
Use Cases
Fundraising Planning and Timing
SaaS companies use burn rate and runway calculations to determine when to begin fundraising conversations. With a 12-month runway, founders typically start the fundraising process around the 6-month mark, accounting for the 3-6 month average fundraising timeline. This proactive approach ensures negotiations happen from a position of strength rather than desperation. Investors scrutinize burn rate trends during due diligence, looking for disciplined spending and improving burn multiples (revenue growth divided by net burn).
Growth Investment Decisions
Product and marketing leaders analyze burn rate when evaluating expansion opportunities. A SaaS company considering entering a new market segment might model how additional headcount and marketing spend would impact burn rate and runway. If current burn is $400K monthly with 18 months of runway, adding $150K in monthly expenses for the new initiative reduces runway to approximately 11 months. This analysis forces leadership teams to prioritize initiatives based on expected ROI and timeline to revenue impact.
Operational Efficiency Optimization
During economic downturns or when approaching funding rounds, CFOs conduct burn rate reduction exercises to extend runway. This might involve renegotiating vendor contracts, reducing discretionary spending, implementing hiring freezes, or restructuring teams. A company facing a 9-month runway with uncertain fundraising prospects might target a 30% burn reduction, extending runway to approximately 13 months and providing breathing room to either close funding or reach profitability milestones that improve valuation.
Implementation Example
Monthly Burn Rate Analysis Dashboard
Track these key metrics in your financial reporting:
Metric | Current Month | Previous Month | 3-Month Avg | Target |
|---|---|---|---|---|
Gross Burn Rate | $485,000 | $510,000 | $495,000 | $450,000 |
Total Revenue | $185,000 | $165,000 | $172,000 | $200,000 |
Net Burn Rate | $300,000 | $345,000 | $323,000 | $250,000 |
Cash Reserves | $3,200,000 | $3,500,000 | - | - |
Runway (months) | 10.7 | 10.1 | 9.9 | 12.0 |
Monthly Revenue Growth | 12% | 8% | 10% | 15% |
Burn Multiple | 1.62 | 2.09 | 1.88 | <2.0 |
Burn Multiple Formula: Net Burn Rate ÷ Net New MRR
A burn multiple under 2.0 indicates efficient growth spending (less than $2 burned for each $1 of new recurring revenue). Above 3.0 signals inefficient capital deployment.
Runway Scenario Planning
According to Bessemer Venture Partners' State of the Cloud report, efficient SaaS companies target burn multiples below 1.5x during growth phases and work toward breakeven as they approach Series B and beyond.
Related Terms
CAC (Customer Acquisition Cost): Directly impacts burn rate through marketing and sales spending efficiency
Customer Lifetime Value: Must exceed CAC by 3-5x to justify burn rate investments
Annual Recurring Revenue: Growing ARR reduces net burn and accelerates path to profitability
Churn Rate: High churn increases burn by requiring continuous customer replacement spending
Unit Economics: Determines whether current burn rate is sustainable based on customer-level profitability
Gross Margin: Higher margins reduce the revenue needed to cover burn and reach breakeven
Rule of 40: Balances growth rate and profitability to assess overall SaaS company health
Frequently Asked Questions
What is burn rate in SaaS?
Quick Answer: Burn rate is the monthly rate at which a SaaS company spends cash reserves before achieving positive cash flow, calculated as total expenses minus revenue.
In SaaS businesses, burn rate measures how quickly the company is consuming capital to fund operations, growth investments, and customer acquisition. Unlike traditional businesses with inventory and upfront revenue, SaaS companies often burn cash in early years while building recurring revenue streams, making burn rate monitoring critical for survival and strategic planning.
What is a good burn rate for a startup?
Quick Answer: A healthy burn rate maintains 12-18 months of runway and achieves a burn multiple below 2.0x, meaning less than $2 burned for every $1 of new recurring revenue generated.
According to OpenView Partners' SaaS benchmarks, acceptable burn rates vary significantly by stage. Pre-revenue startups may burn $100K-$300K monthly while building product. Post-Series A companies burning $500K-$1M monthly should demonstrate strong revenue growth (30-50% YoY) and improving unit economics. The key is ensuring burn rate is justified by proportional growth and a clear path to sustainable customer acquisition economics.
How do you calculate burn rate?
Quick Answer: Net burn rate = (Total Monthly Expenses - Monthly Revenue). Runway = Current Cash Reserves ÷ Net Burn Rate.
Calculate burn rate by totaling all cash outflows (salaries, marketing, hosting, software, rent, etc.) and subtracting all cash inflows (subscription revenue, professional services, etc.) for the month. For example, $600K in expenses minus $250K in revenue equals $350K net monthly burn. With $4.2M in cash, runway is 12 months ($4.2M ÷ $350K). Track this monthly and watch for trends—improving burn rate through either revenue growth or expense management extends runway.
What is the difference between burn rate and runway?
Burn rate measures the speed of cash consumption (dollars per month), while runway measures how long the company can operate at that burn rate (time until cash depletes). They're directly related: runway equals cash divided by burn rate. If your company has $2M in cash and burns $200K monthly, your runway is 10 months. Reducing burn rate to $150K extends runway to 13.3 months. Both metrics must be monitored together—improving burn rate extends runway, while increasing burn rate compresses decision-making timelines.
When should a SaaS company reduce burn rate?
A SaaS company should consider reducing burn rate when runway drops below 12 months, fundraising becomes uncertain, growth efficiency deteriorates (burn multiple exceeds 3.0x), or market conditions tighten. Many companies proactively reduce burn when beginning fundraising processes to demonstrate operational discipline to investors. Cost reductions should focus on low-ROI activities while protecting core growth drivers. The goal is extending runway to reach critical milestones (revenue targets, profitability, product launches) that improve fundraising positioning or eliminate the need for external capital.
Conclusion
Burn rate stands as one of the most critical financial metrics for B2B SaaS companies, directly determining organizational survival and strategic flexibility. Unlike profitability metrics that can be managed through accounting approaches, burn rate reflects the harsh reality of cash consumption—when cash depletes, the business ceases to operate regardless of paper profitability or growth potential.
Marketing and sales teams must understand how their spending contributes to burn rate and justify investments through demonstrated ROI in customer acquisition and revenue growth. Product and engineering organizations impact burn through headcount decisions and infrastructure costs, requiring careful prioritization of initiatives based on business value. Customer success teams reduce burn pressure by minimizing churn and driving expansion revenue that accelerates the path to positive cash flow.
As the venture capital environment continues evolving from "growth at all costs" toward "efficient growth," burn rate management has become a competitive advantage. Companies that master the balance between aggressive growth investment and capital efficiency position themselves to weather market uncertainties, command better valuations, and ultimately build sustainable businesses. Understanding burn rate, runway, and growth efficiency metrics like burn multiple empowers SaaS leaders to make informed decisions about when to accelerate spending, when to optimize for efficiency, and how to time strategic initiatives like fundraising or market expansion.
Last Updated: January 18, 2026
