What is Burn Rate?
Burn rate is how fast your startup is spending money, especially before you’re making any profits.
Imagine your startup has raised ₹1 crore in funding. Now, every month, you’re paying salaries, rent, spending on tools, marketing, and more. That monthly spend is your burn rate.
Why it matters:
Burn rate helps founders and investors understand how long a startup can survive before running out of money. This time period is known as the runway.
For example:
- You have ₹50 lakhs in the bank
- You’re spending ₹10 lakhs/month
You have 5 months of runway
(₹50 lakhs ÷ ₹10 lakhs/month)
Types of Burn Rate:
1. Gross Burn Rate
The total amount you’re spending every month.
Example:
Office Rent: ₹1L
Salaries: ₹5L
Marketing: ₹2L
➡️ Gross Burn Rate = ₹8L/month
2. Net Burn Rate
How much money you’re actually losing after subtracting revenue.
Example:
Revenue: ₹3L
COGS (Cost of Goods Sold): ₹1L
Gross Burn: ₹8L
Net Burn Rate = (₹3L – ₹1L) – ₹8L = -₹6L/month
So, your startup is losing ₹6L every month.
Formula to Know:
- Runway = Total Cash ÷ Net Burn Rate
- Net Burn Rate = (Revenue – COGS) – Operating Costs
What’s a “Good” Burn Rate?
A safe burn rate is typically where you’ve got at least 3–6 months of expenses in the bank. That gives you enough time to:
- Build more
- Raise funds
- Start earning
When Burn Rate is Too High…
Startups may need to cut costs:
- Trim team size
- Reduce marketing
- Negotiate cheaper tools
- Revisit office rent
Calm Comes from Controlled Burn
Burn rate = How fast you’re spending money.
It’s what keeps founders up at night and investors sleep better when it’s under control.