Net Burn Rate

Net Burn Rate measures how quickly a startup is using up its venture capital while accounting for the revenue the business generates. It's a critical metric for assessing financial health and forecasting runway.

What is net burn rate?

Net Burn Rate is the amount of cash a startup spends each month minus the revenue it generates. Unlike gross burn (total monthly expenses), net burn accounts for incoming revenue, which extends your runway. For SaaS companies, this metric is typically calculated on a month-to-month basis.

Formula:

Net Burn Rate = Monthly Expenses - Monthly Revenue

Understanding your net burn rate helps you make informed decisions about your startup's financial future and is often a crucial factor in securing additional funding.

Net burn rate example

Consider a SaaS company spending $50,000 per month on overhead while generating $15,000 per month in monthly recurring revenue:

Net Burn Rate = $50,000 - $15,000 = $35,000 per month

This means the company uses $35,000 of its venture capital each month. If the company has $700,000 in the bank, its runway is approximately 20 months (before additional revenue or cost changes).

Why net burn rate matters

Net burn rate directly impacts your cash runway—the number of months your business can operate before running out of cash. Venture capitalists expect founders to use invested capital strategically to fund growth, not to sit idle. At the same time, companies that burn cash too quickly risk failure, even if they're growing rapidly and approaching profitability.

Monitoring net burn rate helps you:

• Forecast cash runway with accuracy
• Make informed hiring and spending decisions based on financial reality
• Communicate financial health to investors and stakeholders
• Adjust strategy before cash reserves become critical

Net burn rate benchmarks

There are no universal benchmarks for burn rate—the right pace depends on your growth stage, market, and investor expectations. However, industry leaders offer practical guidance:

Fred Wilson, Partner at Union Square Ventures:

"A good rule of thumb is to multiply the number of people on the team by $10,000 to get the monthly burn. That is not the number you pay an employee. That is the 'fully burdened cost' of a person, including rent and other costs."

Danielle Morill, CEO and Co-founder at Mattermark:

Fred's 2011 estimate has risen significantly due to inflation and higher cost of living. In 2014, when Morill surveyed the startup community, Marc Andreessen (General Partner at Andreessen Horowitz) suggested a fully burdened cost per employee of $200,000 per year—approximately $16,666 per month.

Mark Suster, Managing Partner at Upfront Ventures:

"Your value creation must be at least 3 times the amount of cash you're burning, or you're wasting investor value. Money spent should add equity value or create intellectual property that eventually will."

Net burn rate best practices

From Danielle Morill:

• Don't aggressively increase your burn rate until you've confirmed product-market fit
• Limit spending outside payroll and benefits, and rent to 5% of your budget
• Avoid unnecessary scaling (hiring) early on

From Mark Suster:

• Stay lean and only raise a large funding round when you're confident you've achieved product-market fit—then loosen the belt quickly
• Maintain at least six months of cash in the bank: "Take cash balance plus the net of your receivables and payables to get 'net cash.' Divide net cash by your monthly net burn rate as an approximation of how many months of cash you have"
• Have a clear reason for asking venture capitalists for capital if your net burn rate is low
• If you have substantial cash reserves, an untapped credit line, rapidly growing revenue, supportive VCs, and a reasonable valuation, you may justify a slightly higher burn rate to expand while competitors face cash constraints

How to monitor net burn rate in real-time

Once you've established net burn rate metrics, create processes to monitor this and other SaaS KPIs continuously. Real-time dashboards are critical for this purpose—they centralize your financial data, eliminate manual spreadsheet errors, and provide real-time visibility into your cash position.

Klipfolio's dashboard software makes it easy to pull data from accounting tools, bank feeds, and billing systems to track net burn rate alongside related metrics like monthly recurring revenue, customer acquisition cost, and runway. Real-time dashboards keep your entire team aligned on financial health.

Learn more about tracking your SaaS metrics on a dashboard.

Top resources

• What's The Right Burn Rate For Your Company? — Mark Suster, Managing Partner at Upfront Ventures
• Is my Startup Burn Rate Normal? — Danielle Morill, CEO and Co-founder at Mattermark
• Burn Rates, How Much? — Fred Wilson, Partner at Union Square Ventures
• Why You Need to Ring the Frigging Cash Register — Mark Suster, Managing Partner at Upfront Ventures