Framework
Term

Burn Rate

The amount of cash a company spends per month in excess of what it earns. Gross burn is total monthly spend; net burn subtracts revenue collected. Burn rate is the rate at which runway depletes.

Burn rate is a startup's monthly cash consumption. The two standard forms:

  • Gross burn: total monthly cash outflow (payroll, infrastructure, marketing, rent, all of it)
  • Net burn: gross burn minus revenue collected in the same month

Net burn is the figure that drives runway calculations. Gross burn matters when revenue is volatile and a founder wants to plan against the worst case.

Cash burn vs accrual burn

Burn rate is a cash concept, not an accrual concept. A SaaS company billing $120K annually upfront has zero cash inflow in months 2–12 of that contract even though it recognizes $10K of revenue each month under GAAP. Cash collected leads cash spent for SaaS, which is one reason annual billing materially extends runway compared to monthly.

What's a healthy burn rate?

Burn rate alone is meaningless without runway and growth context. The standard heuristic for VC-backed SaaS is the Burn Multiple:

Burn Multiple = Net burn / Net New ARR
  • Under 1.0: best-in-class — each $1 burned produces more than $1 of new ARR
  • 1.0–2.0: efficient
  • 2.0–3.0: still investable in growth markets
  • Over 3.0: requires explanation; usually signals inefficient go-to-market

David Sacks's Burn Multiple framework (2020) popularized this benchmark and remains the most-cited efficiency metric for growth-stage SaaS.

Related

  • Runway — how burn translates to months of life
  • Unit Economics — whether the burn produces durable revenue

See also

Nearby terms

All terms →
ARR / MRR (Annual / Monthly Recurring Revenue)

Annual Recurring Revenue is the normalized yearly value of all active subscriptions; MRR is the same figure expressed monthly. Together they are the headline revenue metrics for any subscription business.

Blue Ocean

A market space where competition is irrelevant because the offering is uncontested — created by either redefining an industry's value proposition or by entering an entirely new market segment.

CAC (Customer Acquisition Cost)

The total sales and marketing spend required to acquire one new paying customer, averaged across a period.

CAC Payback Period

The number of months it takes for a customer's gross profit to repay the cost of acquiring them. The standard threshold of efficient SaaS growth is under 12 months for SMB, under 18 months for mid-market, under 24 months for enterprise.