Quick Summary
Burn Rate measures how quickly a startup or company uses its available cash to cover operating expenses, typically expressed as a monthly amount.
Burn Rate is a critical financial metric that measures the speed at which a company depletes its cash reserves to fund operations before reaching profitability. It is a key indicator of financial runway and is closely monitored by investors and founders.
Types of Burn Rate
- Gross Burn Rate: Total monthly operating expenses (salaries, rent, marketing, etc.)
- Net Burn Rate: Monthly cash loss (Expenses - Revenue). Shows actual cash depletion.
Burn Rate Formula
Gross Burn Rate = Total Monthly Operating Expenses
Net Burn Rate = (Starting Cash - Ending Cash) / Number of Months
Or: Monthly Operating Expenses - Monthly Revenue
Example Calculation
- Starting Cash (Jan 1): ₹1,00,00,000
- Ending Cash (March 31): ₹70,00,000
- Cash Burned: ₹30,00,000 in 3 months
- Net Burn Rate: ₹10,00,000 per month
What Constitutes Burn Rate?
| Included in Burn | Not Included |
|---|---|
| Salaries and wages | One-time capital expenditures |
| Office rent and utilities | Loan principal repayments |
| Marketing and advertising | Funds raised (investment) |
| Software subscriptions | Accounts receivable |
| Professional services | Non-cash expenses (depreciation) |
Healthy Burn Rate Guidelines
- Seed Stage: ₹5-20 lakh/month (varies by industry)
- Series A: ₹50 lakh - ₹2 crore/month
- Growth Stage: Higher burn acceptable with proportional growth
- Rule of Thumb: Should have 12-18 months of runway
How to Reduce Burn Rate
- Reduce non-essential expenses
- Negotiate better vendor contracts
- Optimize marketing spend (focus on ROI)
- Implement remote work (reduce office costs)
- Defer non-critical hiring
- Renegotiate salaries (equity vs cash)
Key Points
- Rate of cash consumption per month
- Gross burn: Total expenses
- Net burn: Expenses minus revenue
- Critical metric for startups
- Used to calculate runway
- Should be monitored weekly/monthly