Burn Rate Calculator
Runway is not cash divided by this month's burn, which is why this burn rate calculator also asks whether revenue is growing. The honest version of the question is whether you get to profitability before the money goes.
Net monthly burn
- Net burn (this month) $260,000.00 of costs less $90,000.00 of gross profit. This, not gross burn, is the rate the bank balance falls at.
- $170,000.00
- Gross burn (this month) Everything that leaves the account, ignoring what comes in. It is the figure to use when asking what happens if revenue stops, which is the question a downturn asks.
- $260,000.00
- Gross profit $120,000.00 of revenue at a 75% gross margin. Only this part pays for operating costs. Using revenue instead overstates how close to break-even you are by $30,000.00 a month.
- $90,000.00
- Runway, flat Cash divided by this month's net burn, assuming nothing changes. This is the figure usually quoted and it is wrong in both directions: too pessimistic if revenue is growing, too optimistic if costs are.
- 14.1 months
- Reaches break-even in Revenue growing 8% a month against costs growing 2% catches up in month 19, with $191,618.45 still in the bank. The company is default alive: on current trajectory it does not need to raise again.
- 19 months
- Default alive? On current growth and spending the company reaches profitability on the money it already has. That is the position that makes a fundraise optional, which is the only time it goes well.
- Yes
| Revenue growth | Outcome |
|---|---|
| 0% | out of cash in month 11 |
| 4% | out of cash in month 13 |
| 6% | out of cash in month 14 |
| 8% | break-even in month 19 |
| 12% | break-even in month 12 |
- Net burn is costs less GROSS PROFIT, not costs less revenue. At a 75% margin, using revenue makes the company look a quarter of its revenue closer to break-even than it is.
- Runway quoted as cash over current burn assumes a flat business. Almost no startup is flat, which is why the single number is the least informative figure in the results.
How the Burn Rate Calculator works
Burn rate is how fast the bank balance falls, and runway is how long that leaves. Both are simple and both are routinely quoted in a form that is wrong by a wide margin.
GROSS BURN is everything leaving the account in a month: payroll, hosting, rent, tools, marketing. NET BURN subtracts what comes in. Net burn is the rate the balance falls at, so it is the one that determines runway, but gross burn is the one to look at when asking what happens if revenue stops. That is the question a bad quarter asks, and the reason both are worth tracking.
The first error is subtracting revenue rather than gross profit. If $120,000 of revenue carries a 75% gross margin, only $90,000 of it is available to pay operating costs; the other $30,000 is the cost of delivering the revenue and has already been spent. Netting off the full $120,000 makes the company look $30,000 a month closer to break-even than it is, every month.
The second is runway as cash divided by current burn. That assumes the business is static, and a company that is growing 6% a month is not static: its burn falls every month, so the flat figure understates how long the money lasts. A company whose costs are growing faster than its revenue is not static either, and there the flat figure is dangerously optimistic.
That leads to the question worth asking. Paul Graham's framing is whether a company is DEFAULT ALIVE or DEFAULT DEAD: on its current growth rate and current spending, does it reach profitability before the money runs out? It is a better question than runway because it has a yes-or-no answer and because the answer changes the decision. A default-alive company can raise money because the terms are good. A default-dead one has to raise, and has to do it on a schedule set by its bank balance, which is the worst position from which to negotiate.
The calculation is a month-by-month projection rather than a division: grow revenue, grow costs, subtract, repeat until either burn turns negative or the balance does. The result is sensitive to the gap between the two growth rates in a way that no single-figure runway can show.
The structural case to watch for is costs growing as fast as revenue. When they do, the gap never closes and no amount of runway reaches break-even: the company gets larger and stays exactly as unprofitable. This is extremely common, because headcount is usually added in proportion to revenue, and it is invisible in any runway figure computed from a single month. A fundraise does not fix it; it buys time during which the same thing continues.
The honest caveat is that all of this projects forward from one month's numbers and assumes smooth growth. Real revenue is lumpy, real hiring arrives in steps, and annual contracts land unevenly through the year. Treat the month count as an order of magnitude and the default-alive answer as the thing to act on. If the answer is close to the line, assume it is worse than the model says, because the errors in these inputs are not symmetric.
Burn Rate Calculator FAQ
What is the difference between gross burn and net burn?
Gross burn is total cash out in a month, ignoring anything coming in. Net burn subtracts gross profit, so it is the rate your balance falls at and is what runway should be computed from. Gross burn is the figure to look at when stress-testing what happens if revenue disappears.
How do you calculate runway?
At its simplest, cash divided by net monthly burn. That is only right for a flat business. If revenue is growing, burn falls each month and real runway is longer; if costs are growing faster than revenue, it is shorter and can be far shorter. The useful version projects month by month until the balance hits zero or burn turns positive.
What does default alive mean?
That on its current growth rate and spending, a company reaches profitability before its money runs out, so it does not have to raise again. Default dead is the opposite. The distinction matters because a company that must raise negotiates on a deadline set by its bank balance, which is the worst possible position.
Should burn rate use revenue or gross profit?
Gross profit. The cost of delivering revenue has already been spent and is not available to pay salaries. At a 75% gross margin, netting off full revenue overstates your progress toward break-even by a quarter of revenue every month, and the error is larger the thinner your margins are.