# Burn Rate

_Also known as: net burn, gross burn_

**Category:** Finance
**URL:** https://skiporship.com/glossary/burn-rate
**Last updated:** 2026-08-08

## Definition

Burn rate is the speed at which a company spends its cash reserves, usually expressed per month. Net burn is spending minus revenue; gross burn is total spending regardless of income.

## What it means in practice

Burn rate is the denominator of survival. Combined with cash in the bank it produces runway, which is the number of months before the company must raise, reach profitability, or stop. Almost every other financial decision at an early-stage company is downstream of it.

The distinction between gross and net burn matters as revenue grows. Gross burn is everything leaving the account; net burn subtracts incoming revenue. A company spending £80,000 a month with £50,000 of revenue has a £30,000 net burn — the figure that actually governs runway, though gross burn shows exposure if revenue were to disappear.

There is no universally correct burn rate. What matters is what the spending buys: burn that produces compounding progress on retention or distribution is investment, while burn that merely sustains headcount is decay. The right question is not whether burn is high but whether the learning per pound spent justifies it.

## Formula

```
Net burn = monthly operating expenses − monthly revenue
```

Runway = cash in bank ÷ net burn. Watch both figures: net governs survival, gross shows exposure if revenue stops.

## Worked example

A startup with £400,000 in the bank reviewing its position.

- Monthly operating expenses: £80,000 (gross burn).
- Monthly revenue: £50,000.
- Net burn = £80,000 − £50,000 = £30,000.
- Runway = £400,000 ÷ £30,000 ≈ 13 months.

**Takeaway:** Runway is 13 months on net burn but only 5 months on gross burn — so the company's survival depends entirely on that revenue holding, which is the real risk to manage.

## Common mistakes

- Quoting net burn while ignoring how fragile the revenue offsetting it is.
- Calculating runway from an average that hides upcoming step changes in cost.
- Treating all burn as equivalent regardless of whether it buys durable progress.
- Leaving fundraising until runway is under three months, when negotiating position collapses.

## Related tool

[Runway calculator](https://skiporship.com/calculators/runway)

## Related terms

- [Runway](https://skiporship.com/glossary/runway) — Runway is the number of months a company can continue operating before it runs out of cash, calculated by dividing cash reserves by net monthly burn.
- [Unit Economics](https://skiporship.com/glossary/unit-economics) — Unit economics are the direct revenues and costs associated with a single unit of your business — usually one customer — showing whether each one is profitable before overheads.
- [Gross Margin](https://skiporship.com/glossary/gross-margin) — Gross margin is the percentage of revenue left after the direct costs of delivering your product or service, before overheads like salaries, marketing and rent.
- [Bootstrapping](https://skiporship.com/glossary/bootstrapping) — Bootstrapping is building a company using revenue and personal funds rather than external investment, retaining full ownership and control at the cost of slower growth.

## FAQ

**What is the difference between gross and net burn?**

Gross burn is total monthly spending. Net burn subtracts revenue from that spending. Net burn determines runway, but gross burn shows how exposed you would be if revenue disappeared.

**What is a healthy burn rate?**

There is no universal figure — it depends on what the spending achieves. The practical test is whether burn is producing compounding progress in retention, revenue or distribution, and whether runway stays above roughly twelve months.

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