Base Net Burn

Date created: Mar 15, 2021  •   Last updated: Mar 15, 2021

What is Base Net Burn?

Base Net Burn gives a view of your Net Burn excluding customer acquisition costs (CAC).

Formula

ƒ Sum(Net Burn) - Sum(CAC)

How to calculate

A business which has a Net Burn of $500k per month and is spending $600k per month on variable customer acquisition costs has a Base Net Burn of -100K per month. In other words, they could be profitable tomorrow by reducing their variable marketing spend.

Base Net Burn

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More about this metric

The logic behind calculating a Base Burn Rate is that it gives you visibility into the extent to which you can turn down the variable customer acquisition costs and reduce your burn. Although this reduces your growth, there are times when this is a trade off you want or need to make.

You have the option to factor in the total CAC including the team, or just the variable CAC related to marketing spend, as the latter may be a lever you can use more quickly.

A business which has a Net Burn of $500k per month but is spending $600k per month on variable customer acquisition costs could be profitable tomorrow and effectively last forever by reducing their marketing spend.

Similarly, a business which has a Net Burn of $500K per month but is spending $400k per month on variable customer acquisition costs is not quite there yet, but is close, so is much less risky than a business with less variable spend flexibility. How much you are prepared to burn in this scenario will partially depend on total funding available, how quickly you are paying back your CAC, and what your LTV/CAC Ratio is.