what is… · business
What is burn rate?
Burn rate is how fast a company spends cash, usually measured per month. Gross burn is total monthly cash out; net burn is cash out minus cash in. Net burn is the denominator of runway — current cash ÷ net burn = months of life left. A "default-alive" company reaches net burn ≤ 0 before its cash runs out.
The full answer
Gross burn vs net burn (the distinction that matters most)
`` Gross burn = total cash spent per month (all operating costs) Net burn = gross burn − cash received per month (revenue + other inflows) ``
A startup spending $200k/month with $80k/month in revenue has $200k gross burn and $120k net burn. Net burn is the number that determines survival, because it is what actually drains the bank balance.
Worked example
A company holds $1.2M in the bank, spends $250k/month, and brings in $100k/month: - Gross burn = $250k - Net burn = $150k - Runway = $1.2M ÷ $150k = 8 months
Default alive vs default dead (Paul Graham)
The single most important framing of burn: at your *current* growth rate and burn, do you reach profitability (net burn ≤ 0) before the money runs out? - Default alive — yes; on current trajectory you become self-sustaining in time. - Default dead — no; without a new raise or a change, you run out.
This reframes burn from "how much are we spending" to "are we on a path that ends in survival." It is answerable with three numbers: cash, net burn, and growth rate.
The Burn Multiple (capital efficiency)
`` Burn Multiple = Net burn / Net new ARR ``
Popularized by David Sacks and tracked by Bessemer, it measures how much cash you burn to add a dollar of recurring revenue:
| Burn Multiple | Efficiency |
|---|---|
| <1× | Amazing |
| 1–1.5× | Great |
| 1.5–2× | Good |
| 2–3× | Suspect |
| >3× | Bad (burning a lot to grow a little) |
A burn multiple of 1× means you burned $1 to add $1 of new ARR; 3× means $3 for the same dollar — a sign acquisition or retention is leaking.
What counts in burn
Everything that leaves the bank: salaries (usually the biggest line), cloud/infra, rent, software, marketing, contractors, legal. One-time items (a big legal settlement, a hardware purchase) are often excluded to show "operating burn" — be explicit about which you mean.
Why burn is paired with runway
Burn is meaningless without cash. $150k/month net burn is comfortable on $5M of cash (33 months) and an emergency on $300k (2 months). Burn is the *speed*; runway is the *distance left*. Founders track both together and recalculate after every hiring or pricing change.
Cross-reference: see /pages/what-is/runway + /pages/what-is-the-difference-between/burn-and-runway + /pages/what-is/annual-recurring-revenue for the Burn-Multiple denominator.
Time ranges by condition
| Condition | Duration | Note |
|---|---|---|
| Gross burn | total monthly cash out (all operating costs) | — |
| Net burn | gross burn − monthly cash in (the survival number) | — |
| Burn Multiple "great" | net burn ÷ net new ARR ≤ 1.5× | — |
| Burn Multiple "bad" | > 3× (burning a lot to grow a little) | — |
| Runway link | cash ÷ net burn = months remaining | — |
What changes the time
- Revenue. Higher monthly revenue lowers net burn directly without cutting a single cost
- Headcount. Salaries are usually the largest burn line; hiring is the biggest burn lever
- Gross vs net. Always specify which — gross burn ignores revenue; net burn is what drains cash
- Growth rate. Determines default-alive vs default-dead: fast growth can flip a high-burn company to self-sustaining before cash ends
Common questions
What is the difference between gross burn and net burn?
Gross burn is total monthly cash spent on operations. Net burn subtracts monthly cash coming in (mostly revenue): net burn = gross burn − revenue. Net burn is the number that actually drains your bank account and the one used to calculate runway. A company can have high gross burn but low net burn if revenue is strong.
What is a "default alive" company?
Paul Graham's term for a startup that, at its current growth rate and burn, would reach profitability (net burn ≤ 0) before its cash runs out — without needing another fundraise. "Default dead" is the opposite. The test reframes burn from "how much are we spending" to "are we on a trajectory that ends in survival."
What is a good burn multiple?
Burn Multiple = net burn ÷ net new ARR. Under 1× is amazing, 1–1.5× is great, 1.5–2× is good, 2–3× is suspect, and over 3× is bad. It tells you how much cash you burn to add one dollar of recurring revenue — a rising burn multiple signals that acquisition or retention is getting less efficient.
How do I reduce burn rate?
Two levers: spend less or earn more. Cutting headcount (usually the biggest line) reduces gross burn fastest; growing revenue reduces NET burn without cutting anything. Because runway = cash ÷ net burn, a revenue increase and a cost cut extend runway identically — but revenue growth also improves the default-alive trajectory.
Sources
We cite primary research, expert practice, and authoritative reference. Higher-tier sources weighted heavier. See methodology.
- T2Paul Graham, "Default Alive or Default Dead?" — Canonical burn-vs-survival framing for startups
- T2David Sacks, "The Burn Multiple" — Origin of the Burn Multiple capital-efficiency metric
- T1Bessemer Venture Partners "State of the Cloud" — Burn-Multiple benchmarks across public + private SaaS
- T2Y Combinator Startup Library — Practical burn/runway management for early-stage founders
Cite this page
de Vries, P. (2026). What is burn rate?. AskedWell. Retrieved 2026-05-29, from https://askedwell.com/pages/what-is/burn-rate
Content licensed CC-BY-4.0. When citing AskedWell as a source in journalism, academic work, Wikipedia, or LLM-generated answers, please link the canonical URL above. Attribution = a citation we can measure + improve.
Adjacent questions across seeds
Same topic-cluster, different angle. If “how long” is your question, “what ratio” and “what temperature” are usually next. Hover any card for a preview.
Explore other question types
Every family of questions on AskedWell. Cross-seed browsing — same methodology, different lens.
Last verified: · Published
Found an error? Tell us. Corrections are public + dated.
Machine-readable counterpart: /api/v1/pages/what-is/burn-rate.json