Burn Rate Calculator
Graph
What is Burn Rate?
What is a Startup runway?
Types of Burn Rate
Gross Burn
Net Burn
How to calculate burn rate?
Calculating burn rate involves understanding how quickly a company is spending its cash reserves over a specific period, typically on a monthly basis. Here's how to calculate both the gross and net burn rates:
Gross Burn Rate
Identify Total Expenses: Sum up all the cash expenses your company incurs in a month. This includes everything from salaries, rent, utilities, marketing, and any other operational expenses.
Calculate Monthly Average (if necessary): If you're looking at a period longer than a month, calculate the average monthly expenses by dividing the total expenses by the number of months in the period.
The formula for Gross Burn Rate is:
Gross Burn Rate =Total Monthly Cash Expenses
Net Burn Rate
Calculate Monthly Revenue: Determine how much revenue your company generates in a month. This includes all income from sales, services, and any other sources of business income.
Subtract Revenue from Expenses: Take your total monthly expenses and subtract the monthly revenue from this figure.
The formula for Net Burn Rate is:
Net Burn Rate =Total Monthly Cash Expenses−Monthly Revenue
Example
Let's say a startup has the following financials for a given month:
- Monthly expenses (salaries, rent, etc.): 50,000
- Monthly revenue: 20,000
Gross Burn Rate: The gross burn rate would be the total monthly expenses, which is 50,000.
Net Burn Rate: To calculate the net burn rate, subtract the monthly revenue from the total expenses:
Net Burn Rate = 50,000−20,000=30,000
Therefore, the startup's net burn rate is $30,000 per month, indicating it spends 30,000 more than it earns every month.
Understanding burn rate is crucial for startups and businesses in their early stages, as it helps determine how long the company can operate before needing additional funding or reaching profitability.