What Is Burn Rate?
How fast your startup is spending cash — and why gross vs net burn tells different stories.
Definition
Burn rate is the rate at which your company spends cash. Gross burn is your total monthly expenditure. Net burn subtracts revenue: Net Burn = Total Monthly Expenses − Total Monthly Revenue.
Net burn is the more useful figure because it shows how quickly you are depleting your cash reserves after accounting for incoming revenue.
How Burn Rate Is Calculated
Gross Burn Rate = Total monthly operating expenses (salaries, rent, software, marketing, etc.).
Net Burn Rate = Gross Burn − Monthly Revenue. If you spend $80K/month and earn $30K/month, your net burn is $50K/month.
Varsal computes burn rate from your connected banking data, automatically categorizing transactions into revenue and expenses.
Track this metric live in your dashboard →Why Burn Rate Matters
Burn rate directly determines your runway — how long you can operate before running out of cash. It is the most important operational metric for pre-profit startups.
Investors scrutinize burn rate to assess capital efficiency. A company burning $200K/month to generate $50K MRR is less capital-efficient than one burning $80K/month for the same revenue.
Burn Rate Benchmarks
There is no universal "good" burn rate — it depends on your stage, growth rate, and cash reserves. However, the burn multiple (net burn ÷ net new ARR) is a useful efficiency benchmark.
A burn multiple under 1x is excellent. Between 1–2x is good. Above 2x suggests you are spending too much relative to growth. Above 3x is a red flag unless you are very early stage.
How to Manage Burn
Categorize every expense as "core" (directly drives revenue or product) or "nice-to-have." In uncertain markets, cut nice-to-haves aggressively.
Monitor burn rate trends, not just the absolute number. A rising burn rate is fine if revenue is rising faster. A flat or declining revenue with rising burn is an emergency. Set monthly burn rate reviews and tie spending increases to revenue milestones.
Track Burn Rate in real time
Varsal connects your tools and shows every metric on a single screen. No code, no spreadsheets — just clarity.
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