Burn Rate

Gross burn and net burn are different questions

Gross burn is what leaves the building: total cash operating outflow, ignoring anything customers pay you. Net burn subtracts collections and is therefore the number that actually drains the bank account, which makes it the input to runway.

Both are worth tracking. Net burn tells you how long you have. Gross burn tells you what your cost base is independent of revenue, which is the number that matters when you are stress-testing a scenario where growth stalls. A company at $410,000 gross and $210,000 net looks very different under a plan where new business halves. Quote which one you mean, every time — the gap between them is routinely 2x and the two get swapped constantly in investor updates.

Burn is cash, not accounting

Burn and net loss are not the same measure and often disagree substantially. A business selling annual contracts up front collects twelve months of cash on signature while recognising one month of revenue, so it can burn far less than its profit and loss suggests — the difference sits in deferred revenue. The reverse also happens: a company can be near break-even on paper while burning heavily because it prepaid a year of hosting, settled a tax bill, or funded capital expenditure that never touches the income statement in the month it is paid.

Practical consequence: compute burn from bank movement, not from the P&L. If the cash balance fell by $210,000 and no financing arrived, you burned $210,000 regardless of what the accounts say.

Smoothing, and the one-offs that are not one-offs

A single month of burn is close to meaningless. Payroll timing, quarterly tax payments, annual insurance renewals, conference season and a large customer paying early can each move it more than any real change in spending. Report a trailing three-month average net burn as the headline, with the monthly series available underneath.

Strip out genuine one-offs — a legal settlement, a fundraise fee — but be honest about which items are actually recurring. Annual software renewals, insurance and tax payments feel like one-offs each time they land and arrive every year without fail. A burn figure that excludes every lumpy payment is a burn figure that will be wrong by the amount of those payments, and runway calculated from it will be optimistic in exactly the same proportion.

Judging burn against what it buys

There is no useful absolute benchmark for burn, because a $400,000 monthly burn is either reckless or conservative depending entirely on what it produces. The comparison worth making is burn against growth. The burn multiple — net burn divided by net new ARR in the same period — is the standard formulation of this, popularised by investor David Sacks: it asks how many pounds you burn to add one pound of recurring revenue. Under roughly 1.5 is generally treated as efficient, and above 3 as expensive.

It pairs naturally with CAC payback period, which measures the same underlying question at the level of a single customer rather than the whole company. If payback is lengthening and the burn multiple is rising together, the cause is acquisition efficiency rather than overhead — and that is a much more actionable diagnosis than "we are spending too much".