Burn rate — Burn rate
What is burn rate?
Burn rate is the net money a company consumes each month: everything it spends minus everything it brings in. It is the denominator of runway and, at a company that bills, it is considerably lower than total spend.
Also: monthly burn · cash burn
Gross and net
Gross burn is everything going out; net burn subtracts what comes in. A company spending €50,000 and billing €35,000 has a gross burn of 50,000 and a net burn of 15,000. Confusing them triples the sense of urgency and leads to cutting in the wrong place.
Why it matters
What it means for a SaaS
It is what moves runway most directly, and the only thing you can change without depending on anybody outside. It is also where you see whether growth is paid for by customers or by cash: if net burn rises at the same pace as revenue, the business is growing on sheer effort, without getting any more efficient.
Burn rate in detail
Where it usually sits
In people, by a long way. After that, in tools nobody has reviewed since they were signed. The rest rarely changes the figure much, even though it is where everybody looks first.
Burn per new customer
Dividing net burn by the customers won that month gives an uncomfortable and very useful figure: what each new customer costs counting everything, not just the marketing spend.
Frequently asked questions
Is a high burn rate bad?
It depends on the runway and on what that burn buys. Burning a lot with two years of cash and growth that responds is investing; burning little without growing is dying slowly.
Related terms
These usually come up in the same conversation.
Runway
Runway is how many months a company can keep operating on the money it has, at the current rate of spend. It is calculated by dividing available cash by what gets burned each month, and it is the figure that orders every other decision.
MRR — Monthly recurring revenue
MRR is the sum of recurring revenue a subscription business bills each month, normalizing annual contracts to their monthly equivalent. It excludes anything that does not repeat (implementations, consulting, one-off charges) because what it measures is the stable base.
CAC — Customer acquisition cost
CAC is what it costs to win a new customer: all marketing and sales spend in a period divided by the customers won in that same period. It includes salaries, tools and advertising, not only the ad budget.
Churn
Churn is the percentage of customers, or of revenue, lost in a period. It is the metric that tells you whether a subscription business is growing or just standing still: with high churn, every new customer only fills the hole left by another.
LTV — Lifetime value
LTV estimates how much revenue a customer brings across their whole relationship with the company. At a SaaS it is approximated by dividing average monthly revenue per customer by the monthly churn rate: the less people leave, the more each customer is worth.
Onboarding
Onboarding is the process that takes a customer from signing up to getting their first result with the product. It covers the initial setup, the data import, training the team and everything else needed for usage to become routine.
