How to Calculate Burn Rate: Gross vs Net Burn

To calculate burn rate, add up all cash leaving your business in a month (that is your gross burn), then subtract the cash coming in from customers in the same month (that gives your net burn). Net burn is the figure most people mean by "burn rate", because it shows how fast your bank balance shrinks. Divide your cash in the bank by net burn and you get your runway in months.

The formula is simple. The hard part is getting clean inputs and deciding how to treat lumpy items like annual software bills, tax payments or a customer who pays a year in advance. This guide walks through both.

The two burn rate formulas

Metric	Formula	What it tells you
Gross burn	Total cash out in the month	What it costs to run the company
Net burn	Cash out − cash in from operations	How fast cash actually decreases
Runway	Cash in the bank ÷ net burn	Months until cash reaches zero

Gross burn is useful for understanding your cost base. If revenue disappeared tomorrow, gross burn is what you would still have to pay.

Net burn is useful for survival planning. A company with €80,000 gross burn and €50,000 monthly revenue has a net burn of €30,000, which is a very different situation from a pre-revenue company burning €80,000 net.

Both belong in your monthly report. Investors often ask for both, and they sit at the top of the list of startup financial metrics worth tracking.

Step by step: calculating burn rate from your bank account

The most reliable source for burn rate is your bank account, not your profit and loss statement. Accounting profit includes non-cash items and timing adjustments; burn is about cash.

Step 1: Pick the period

Use full calendar months. For a stable figure, collect the last three months.

Step 2: Sum all cash outflows

Include everything that left the business account:

• Salaries, payroll taxes and social contributions
• Contractor and freelancer payments
• Rent, utilities, coworking fees
• Software subscriptions and hosting
• Marketing and advertising spend
• Travel, equipment and other operating costs
• Loan repayments and interest, if you have debt
• Tax payments that are part of normal operations

Exclude transfers between your own accounts, since they do not reduce total cash.

Step 3: Sum operating cash inflows

Include cash received from customers. Be careful with other inflows:

• Include: customer payments, refunds you received from suppliers.
• Exclude: equity investments, new loan proceeds and grant payments, or show them on a separate line. They extend runway, but they are financing, not operating performance. Mixing them in makes burn look artificially low in the month money arrives.

Step 4: Calculate gross and net burn

Gross burn = total from step 2. Net burn = step 2 − step 3.

Step 5: Average and sanity-check

Average the three months, then look at what drove differences between them. If one month had a one-off cost, note it.

Worked example

A hypothetical startup with seven people reviews its last three months.

	July	August	September
Salaries and payroll costs	€48,000	€48,000	€52,000
Contractors	€6,000	€4,000	€4,000
Office and coworking	€3,500	€3,500	€3,500
Software and hosting	€2,800	€2,900	€9,100
Marketing	€5,000	€6,500	€7,000
Other	€1,700	€2,100	€1,900
Gross burn	€67,000	€67,000	€77,500
Customer payments	€14,000	€15,500	€17,000
Net burn	€53,000	€51,500	€60,500

The three-month average net burn is (€53,000 + €51,500 + €60,500) ÷ 3 = €55,000.

But look at September's software line. €9,100 includes a hypothetical €6,000 annual licence renewal. If you spread that over twelve months, September's "underlying" net burn is closer to €55,000 too, and the true monthly cost of that licence is €500.

With €700,000 in the bank:

• Runway at the three-month average: €700,000 ÷ €55,000 ≈ 12.7 months
• Runway at September's raw figure: €700,000 ÷ €60,500 ≈ 11.6 months

The difference is about a month. Not dramatic, but it shows why you should explain your number rather than just report it.

Handling lumpy items

Some costs and receipts arrive in large, irregular chunks. There are two ways to deal with them:

1. Report actual cash (what happened) as the official burn figure, because that is what your bank balance reflects.
2. Show a normalised view next to it, where annual items are spread across twelve months, to see the underlying trend.

Common lumpy items:

Item	Effect on burn	Suggested treatment
Annual software licences	Spike in renewal month	Note it, normalise in the trend view
Customers paying annually upfront	Net burn drops sharply that month	Note it; future months have lower inflows
Quarterly or annual tax payments	Spike in payment month	Plan for them in your runway projection
One-off hardware purchases	Spike	Note it; exclude from trend view
Recruiting fees	Spike when a hire starts	Include in the hiring plan
Equity or loan proceeds	Not part of burn	Track separately as financing

Annual prepayments deserve special attention. If a large customer pays €36,000 for a year in January, your January net burn may look tiny. But you will not receive that money again for twelve months. If you extrapolate January into a runway figure, you overestimate runway.

From burn rate to runway projection

The simple runway formula assumes net burn stays constant. That is rarely true:

• Expenses grow as you hire and spend more on marketing.
• Revenue grows (hopefully) and reduces net burn.

A month-by-month projection captures both. Suppose the company above has €700,000, monthly expenses of €70,000 growing 2% per month and revenue of €17,000 growing 6% per month. Net burn starts at €53,000, but rising costs and rising revenue partly offset each other, and the shape of the curve depends heavily on the two growth rates.

The runway calculator does this projection for you. Enter cash, current revenue, current expenses and both growth rates, and it shows months of runway, the zero-cash date and, if revenue overtakes expenses first, the month you would break even. Try a few scenarios: a slower revenue growth rate is usually more realistic than the plan you hope for.

Checklist: a burn rate number you can trust

• Calculated from bank transactions, not the P&L
• All business accounts included (also card and payment provider balances)
• Financing inflows (equity, loans, grants) kept separate
• Gross and net burn both reported
• Three-month average and latest month shown side by side
• One-off items listed with a short explanation
• Upcoming known cost changes (new hires, renewals, taxes) noted for the projection

Common mistakes

Counting investment as revenue. A €500,000 investment in a month does not mean you had negative burn. It means you raised money.

Forgetting payroll taxes and benefits. Gross salary is not the full cost of an employee. Depending on the country, employer contributions can add a significant amount on top.

Ignoring card balances. Expenses paid by company credit card hit cash when the card is settled. If you only look at the bank, you may be a month behind.

Using a "good" month as the baseline. Founders under pressure tend to pick the month that makes runway look longest. Use an average.

Treating burn as fixed. Burn changes the moment you make a hire or launch a campaign. Re-run the projection whenever a significant decision changes your cost base.

What to do if your burn rate is too high

High burn is not a problem by itself if it buys progress and you have the runway to reach the next milestone. It becomes a problem when runway is shorter than the time you need to raise money or reach profitability. Start by ranking costs by how directly they contribute to your next milestone, and look at revenue-side levers too. The practical options are covered in how to extend startup runway.

A useful habit is to put a "cost per milestone" lens on spending: for each major cost line, ask what it is supposed to move (for example, activation rate, pipeline, a product release) and whether there is evidence that it is moving.

Summary

Gross burn is everything you spend in a month; net burn subtracts customer cash and shows how fast you run out of money. Calculate both from your bank accounts, average across three months, separate financing from operations, and explain any lumpy items. Then turn burn into a runway projection that includes expected growth on both sides, and update it every month.

This article is general information, not financial or accounting advice. Accounting and tax treatment differs by country; ask an accountant for anything specific to your company.