Burn Rate Explained: Definition, Types, and How to Measure Them

Every business needs to know how fast it’s spending money. Whether you’re running a startup or managing an established company, one of the simplest ways to measure financial health is by looking at your burn rate.

Your burn rate shows how quickly you’re using up your available cash. It’s not just a number, it’s a signal of how sustainable your spending habits are, how efficient your operations can be, and how long you can keep running before you run out of money. In this guide, we’ll break down everything you need to know about burn rate, including its definition, the different types, how to calculate it, and how to manage it effectively.

What Is Burn Rate?

Burn rate is the rate at which a company spends its cash over a specific period of time, usually a month. It’s a key metric for understanding how fast cash reserves are being used to cover expenses before new revenue or funding comes in.If your business spends more money than it earns, the difference between the two is your net burn rate. This figure tells you how quickly your cash balance is decreasing.

For example: If your company spends $50,000 a month and earns $20,000, your burn rate is $30,000. That means if you have $150,000 in the bank, you can operate for about five months before running out of cash.

In short, burn rate helps you answer one big question: How long can we keep operating with the money we have?

Why Burn Rate Matters

Tracking your burn rate gives you visibility into your financial position and cost structure. It shows whether your current spending is sustainable and helps you make smart budgeting decisions.

Here’s why it matters so much:

• Understanding financial health: Your burn rate gives a clear picture of whether your company is living within its means or overspending. If your burn rate is too high compared to revenue, you’ll need to cut costs or find new funding sooner.
• Building investor confidence: Investors pay close attention to burn rate because it reflects how efficiently a business is using its capital. A manageable burn rate signals strong financial discipline.
• Supporting cost management: Burn rate plays a direct role in Cost Management. When you understand how much cash you burn monthly, you can identify wasteful spending, allocate resources better, and plan for sustainable growth.
• Estimating cash runway: Your burn rate helps you calculate your runway, or how many months of cash you have left. This is essential for planning hiring, marketing, or scaling activities without running short on funds.

Types of Burn Rate

There are two main types of burn rate: gross burn and net burn. Understanding both gives you a complete picture of how your company uses and manages cash.

1. Gross Burn Rate

Gross burn rate measures total cash spent during a specific period, regardless of income. It includes all operational costs such as salaries, rent, marketing, software, and other expenses. It answers the question: How much are we spending to keep things running?

Example: If your business spends $90,000 per month on payroll, rent, and marketing, your gross burn rate is $90,000.

Why it matters: Gross burn helps you see your total monthly spending and identify which areas consume the most resources. It’s especially useful for cost management because it highlights where potential savings can come from.

2. Net Burn Rate

Net burn rate considers both money going out and money coming in. It represents the net loss of cash over a given period.

Formula: Net Burn = Total Cash Outflow − Total Cash Inflow

Example: If your company spends $90,000 and earns $40,000 in the same month, your net burn rate is $50,000.

Why it matters: Net burn is a more realistic measure of financial sustainability. It shows how much cash you’re actually losing each month and helps estimate how long your cash reserves will last.

How to Calculate Burn Rate

Calculating burn rate isn’t complicated. It’s all about knowing how much money leaves your account and how much comes in. Follow these simple steps to calculate your burn rate accurately.

Step 1: Choose a time period

Decide which period you want to measure. Most companies calculate burn rate monthly, but weekly or quarterly can also work depending on your needs. Using the same period each time helps you spot trends and changes in your spending patterns.

Step 2: Add up your cash spent

Look at everything your company paid for during that period: salaries, rent, marketing, software subscriptions, and other expenses. Add them together to find your total cash outflow, which shows how much money left your business.

Step 3: Add up your cash received

Now, total all the money that came in during the same time frame. Include revenue from sales, client payments, or other sources. This gives you your total cash inflow for that period.

Step 4: Subtract inflow from outflow

Once you have both numbers, subtract your inflow from your outflow. The result is your net burn rate, or how much cash you lost during the chosen period.

Example: If you spent $60,000 and earned $25,000, your burn rate is $35,000 for that month.

Formula Box

Gross burn (period) = Total Cash Outflow Net burn (period) = Total Cash Outflow − Total Cash Inflow Runway (months) = Cash on Hand ÷ Monthly Net Burn

Step 5: Calculate how long your cash will last

Now take your total cash balance and divide it by your monthly burn rate. The result tells you how many months you can keep operating at your current spending rate, this is your cash runway.

Example: If you have $140,000 in the bank and a monthly burn rate of $35,000, you have about four months of runway left.

Quick Tip

Review your burn rate regularly. A monthly review helps you react quickly to changes in expenses, income, or funding so you don’t get caught off guard.

What’s a Good or Bad Burn Rate?

There’s no universal number for a “good” burn rate. It depends on your business model, growth stage, and funding situation. However, there are a few general guidelines you can keep in mind.

A burn rate that’s too high means you’re spending cash faster than you can replace it. This might be acceptable for a high-growth startup with recent funding, but it becomes risky if you don’t have a clear path to profitability.

A burn rate that’s too low could suggest underinvestment in growth. If you’re spending very cautiously, you might miss opportunities to expand, develop products, or reach new customers.

The key is balance. A healthy burn rate matches your company’s growth goals and funding timeline. It allows you to invest in progress without running out of money too soon.

How to Manage or Reduce Burn Rate

If your burn rate looks too high, don’t panic. There are practical steps you can take to manage or reduce it without hurting your business.

1. Review your expenses: Start with a detailed review of your biggest spending categories. Identify costs that don’t directly contribute to growth or operations, and see if they can be reduced or paused.

2. Delay non-essential hires or projects: If your cash is tight, focus only on roles and projects that directly impact revenue or product delivery. Expanding too quickly increases burn without guaranteed returns.

3. Renegotiate with vendors and suppliers: Many recurring expenses, like software, office space, or supply contracts, can be adjusted. Negotiating better terms can have a quick impact on your burn rate.

4. Increase cash inflows: Find ways to improve revenue without dramatically increasing expenses. That could mean shortening payment terms, upselling current customers, or adjusting your pricing strategy.

5. Track spending with software: Use financial tracking or project management tools to monitor where your money goes. When paired with cost management dashboards, you’ll see your burn rate trends clearly and spot potential issues early.

Moreover, you can also conduct a cost-benefit analysis on major expenses or planned hires to determine which investments are worth keeping and which can be delayed or reduced.

Common Mistakes When Measuring Burn Rate

Even simple calculations can go wrong if you don’t pay attention to details. Here are a few common mistakes to avoid:

• Ignoring one-time expenses: Big one-off costs like equipment purchases or event sponsorships can distort your burn rate. Note them separately to avoid false trends.
• Confusing gross and net burn: Always clarify whether you’re talking about total spending (gross burn) or net loss after income (net burn). They tell very different stories.
• Using outdated financial data: Your burn rate is only as accurate as your data. Always use the latest cash transactions rather than old reports or projections.
• Mixing up cash flow and accounting figures: Burn rate tracks real cash movement, not accrual accounting. Exclude non-cash items like depreciation or unpaid invoices.

Burn Rate in Project Management

Burn rate isn’t just for startups or finance teams, it’s also useful in project management. In this context, burn rate tracks how much of your project budget is being spent compared to the progress made.

For example, if your project uses half its budget but is only 25% complete, your burn rate is a red flag. It helps you identify overspending early, realign resources, and ensure the project stays on budget.

Monitoring burn rate in projects works best when combined with cost tracking. A good cost tracker helps project managers see which activities are consuming resources and allows for more accurate cost-benefit analysis when allocating budgets.

By combining financial burn rate with resource allocation metrics, project managers can balance spending and performance more effectively. Tools like TaskFord that integrate budgeting and cost tracking make this process easier and more transparent.

Conclusion

Understanding your burn rate gives you control over your company’s financial health. It shows how efficiently you use your cash, how long your reserves will last, and whether your spending aligns with your goals.

By tracking both gross and net burn, you can stay ahead of potential problems and make confident, data-driven decisions. Combine this with consistent cost management, and you’ll have the insight needed to sustain growth, attract investors, and avoid sudden cash shortages. Moreover, use a cost tracker like TaskFord can help you track the current cost during projects to make sure you have a balanced burn rate.

Whether you’re managing a fast-growing startup or a long-term project, your burn rate tells a simple story: how well you’re balancing ambition with reality.

Learn more

• What Is Project Management: A Beginner’s Comprehensive Guide 2026.
• Project Cost Management: A Beginner’s Guide to Budgeting and Control.
• How Can Budget Planning Help Manage Resources - Best Tactics 2026.