Burn rate and net burn are not the same metric, even though the terms are often used interchangeably. Burn rate measures how fast a company spends cash; net burn measures how much cash the company actually loses after accounting for revenue.
Getting these two numbers confused leads to poor runway calculations and misread financial health.
The core distinction
Gross burn captures every outgoing dollar in a period — salaries, rent, software, marketing — before any revenue is subtracted. Net burn subtracts revenue from that total to show actual cash loss.
| Gross burn rate | Net burn | |
|---|---|---|
| What it measures | Total cash spent in a period | Cash lost after revenue |
| Revenue included | No | Yes |
| Primary use | Cost structure analysis | Runway calculation |
| Best for | Pre-revenue companies | Revenue-generating companies |
| Typical audience | Operations, finance teams | Investors, founders |
For a pre-revenue startup, the two figures are identical — there's nothing to subtract. The distinction becomes significant the moment a company starts generating income.
When to use each metric
Use gross burn when you need to understand the full cost base of a business: how much it costs to operate, where spending reductions are possible, or how efficiency has changed across periods.
Use net burn when calculating cash runway, reporting to investors or a board, or modelling how revenue growth affects cash depletion. When an investor asks "what's your burn rate?" they almost always mean net burn.
Most finance teams track both. Gross burn informs cost management; net burn informs strategic planning and fundraising timing.
How they connect to runway
Runway is the number of months a company can operate before running out of cash. Net burn is the correct input:
Runway (months) = Cash on hand / Net burn rate
Consider two companies, each spending $300,000 per month:
- Company A has no revenue. Net burn = $300,000. Eight months of runway on $2.4M in the bank.
- Company B generates $120,000 in monthly revenue. Net burn = $180,000. The same $2.4M buys over thirteen months of runway.
Using gross burn for Company B would understate its runway by more than five months — enough to trigger unnecessary fundraising pressure or misrepresent financial position to a board.
Common mistakes
Mixing gross and net burn in the same analysis. Switching between the two without labelling which is which produces unreliable runway models. Always specify which figure you're using.
Counting deferred revenue as income. Cash received for services not yet delivered may sit in the bank but is not earned revenue. Including it in net burn makes the business look healthier than it is.
Using a single month as the baseline. A large hiring push or a prepaid annual contract can distort any one month. A three-month rolling average smooths out those anomalies.
Tracking both metrics together gives a complete picture: gross burn shows whether the cost structure is sustainable, and net burn shows whether the business can survive on its current cash reserves.
