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.
What is 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.
Also: cash runway · months of cash
At the current rate, not the one you would like
The usual mistake is calculating it from last month spend when you have just hired two people, or from a six-month average that included an annual payment. Useful runway is calculated from the spend you are about to have, not the spend you had.
Why it matters
What changes in a SaaS
Because it changes which decisions are reasonable. With eighteen months you can invest in something slow to pay off; with five, any initiative that does not move revenue within that window is a luxury. The same decision is good or terrible depending on this figure.
Runway in detail
How it is calculated
Available cash divided by monthly net burn. Net means spend minus revenue: a company that bills does not burn what it spends, it burns the difference.
The three bands
Under six months, anything that does not bring revenue stops. Between six and twelve, you can run bounded experiments. Above eighteen, there is room to build something slow. Knowing which band you are in avoids strategy arguments that are really cash arguments.
What extends it without cutting
Collecting sooner, collecting annual contracts upfront, and removing what nobody uses. There is usually more room there than in the list of cuts that comes to mind first.
Questions about runway
How much runway should you have?
The usual rule is not to drop below twelve months if you plan to raise, because a round takes three to six months to close and negotiating in a hurry is expensive.
Does committed but uncollected money count?
No. Runway is calculated on the cash in the bank. A signed contract collected in ninety days does not pay this month payroll.
Related terms
A term on its own is only half understood. These come up in the same conversation.
Burn rate — 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.
MRR — Monthly recurring revenue
MRR is the sum of recurring revenue a subscription business bills each month, normalising annual contracts to their monthly equivalent. It excludes anything that does not repeat — implementations, consulting, one-off charges — because its job is to measure the stable base.
Churn
Churn is the percentage of customers — or of revenue — lost in a period. It is the metric that decides whether a subscription business genuinely grows: with high churn, every new customer only fills the hole left by another.
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.
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.
ICP — Ideal customer profile
The ideal customer profile describes the kind of company the product works best for: its size, its sector, how it works and what problem it has. It is not who you sell to, it is who you should be selling to if you could choose.
