Every business—especially startups—has one universal truth: cash doesn’t last forever.
If you don’t keep an eye on how fast you’re spending, you might wake up one day with an empty bank account and no backup plan.
This is the phenomenon of burn rate.
Burn rate is the warning system, a survival tracker, and a roadmap to financial stability.
It tells you exactly how long your business can last before you need more funding or start turning a profit.
Consider also Burn Rate Calculator that can give you the chance to scale effectively.
In this guide, we’ll explore how to calculate Burn Rate and Plan for Financial Stability.
Crunching the Numbers: How to Calculate Burn Rate (Without Confusing Yourself)
Keeping track of your company’s burn rate is about knowing exactly how long your business can survive before you need more cash.
Whether you’re running a SaaS startup, a home services business, or an e-commerce store, your burn rate tells you how much breathing room you have.
Too high?
You’ll run out of cash before you hit your next funding round. Too low? You might not be investing enough in growth.
Math You Actually Need: The Only Two Formulas You Should Care About
Knowing how much money your business is burning every month keeps you from making blind financial decisions.
Investors watch burn rate like hawks, and so should you.
The Gross Burn Rate Formula
Gross burn rate is the total amount of cash your business spends every month—everything from payroll to rent to software subscriptions. It’s calculated like this:
Source: Bench
Example: Let’s say you run a home services company that spends:
- $10,000 on employee wages
- $3,000 on rent
- $2,000 on marketing
- $1,000 on software & tools
Your gross burn rate would be: $10,000 + $3,000 + $2,000 + $1,000 = $16,000 per month
Now, this doesn’t tell you how much money you’re actually losing—only what you’re spending. That’s where the net burn rate comes in.
The Net Burn Rate Formula
Net burn rate takes your revenue into account—it shows you how much money you’re actually losing every month.
Source: Bench
Example: Let’s say that the same home services business is pulling in $12,000 per month from customers. The cost of providing the service (equipment, labor, etc.) is $4,000.
Net Burn Rate Calculation: ($12,000 – $4,000) – $16,000 = -$8,000 per month
That means the company is losing $8,000 each month—a number that directly affects how long it can keep going before cash runs out.
Why These Numbers Matter:
- If gross burn is too high, it’s time to trim unnecessary expenses.
- If net burn is manageable, you might have more time than you think.
- If net burn is unsustainable, start looking at ways to increase revenue or secure funding.
Case Study: How a Startup Cut Its Burn Rate by 40% in 3 Months
Numbers are great, but real-world strategies show how the burn rate impacts businesses in different industries.
The Problem: A SaaS Startup Was Burning Cash Too Fast
A SaaS company offering small-business payroll services had a burn rate of $100,000 per month. With only 10 months of cash runway left, the founders knew they had to act fast.
The 40% Rule: Spending vs. Revenue Growth
Instead of blindly cutting costs, they followed the 40% rule, suggested by Brad Field—which suggests that a company’s combined growth rate and profitability should be at least 40%.
What They Did:
- Renegotiated Software Costs: Instead of paying $15,000/month for software licenses, they switched to a custom-built system.
- Switched to Remote Work: Closing their physical office saved $12,000/month in rent.
- Refocused Marketing Spend: They cut ineffective ad spending by $8,000/month and doubled down on organic content.
The Result: In three months, they lowered their burn rate from $100,000 to $60,000, extending their runway to 16 months.
Lesson: Burn rate management isn’t just about spending less—it’s about spending wisely.
Cash Runway: How Long Before You Hit Empty?
If your burn rate is high and revenue is low, your cash runway is shrinking fast.
Adjusting Spending to Extend Survival
If you have less than 12 months of runway, you need to:
- Reassess fixed vs. variable costs (Is there anything unnecessary?)
- Delay large purchases (Can software upgrades wait?)
- Negotiate longer payment terms (Vendors often offer flexibility.)
The longer your runway, the more control you have over your next move.
Fast Burn vs. Slow Burn: When to Speed Up or Slam the Brakes
Not every business should obsess over a low burn rate.
Some industries expect high burn rates, while others thrive on lean operations.
When a High Burn Rate Makes Sense
Some startups burn cash on purpose to capture market share fast.
- E-commerce startups: Invest heavily in customer acquisition before competitors catch up.
- SaaS companies: Spend big upfront to build strong tech before monetizing.
💡 Example: An AI-powered lending platform had a burn rate of $200,000 per month but used aggressive marketing to triple its customer base. The bet paid off—by year two, they were profitable.
When a Slow Burn is Smarter
Some industries benefit from low burn rates because of slower growth cycles.
- Home services: Steady, predictable growth with minimal overhead.
- B2B consulting: Profitability is more important than expansion.
💡 Example: A boutique consulting firm reduced its burn rate by switching to contract-based hires rather than full-time employees, extending its cash runway by a year.
Finding the Balance Between Growth & Survival
Ask yourself:
- Is your burn rate aligned with your business model?
- Do you have enough runway to survive the next 12-18 months?
- Are you spending money in the right places?
Stop the Leak: Expenses That Are Quietly Bleeding You Dry
Some expenses don’t look like a big deal at first.
A few hundred dollars here, a couple of software subscriptions there—until suddenly, you’re looking at a massive dent in your cash reserves.
The tricky part? These costs often hide in plain sight, making them hard to catch until they’ve drained thousands from your budget.
Subscription Creep: How Software Tools Drain Thousands Per Year
Every business, from SaaS startups to home service companies, relies on software.
But how many of those monthly subscriptions do you actually need?
Source: Sellcoursesonline
Many companies start with a free trial, forget to cancel, and end up paying for tools they rarely use.
Others subscribe to multiple tools that serve similar functions—paying twice for the same job.
The reality:
- A mid-sized e-commerce store found they were spending $14,000 per year on marketing and analytics tools—many of which overlapped in features.
- A FinTech startup realized they had six different cloud storage plans, costing them an extra $4,800 annually.
Fix it:
- Do a quarterly audit. Identify overlapping tools and unused subscriptions.
- Negotiate with vendors. Many software companies offer discounts if you pay annually instead of monthly.
- Look for all-in-one solutions. Instead of using three separate tools for CRM, email marketing, and automation, find one that does it all.
Office Space vs. Remote Work: The Unexpected Costs of Physical Locations
Many businesses still spend a fortune on office space, even when remote work is a viable alternative.
The real cost of office space:
- A SaaS company with 20 employees paid $10,000/month for an office they barely used, leading them to switch to a hybrid model—saving $60,000 per year.
- A home services company had an office space for admin staff but found that shifting to remote work for scheduling and customer service saved them $5,000 per month.
Fix it:
- Reevaluate your need for physical space. Could a coworking membership or remote setup work instead?
- Negotiate with landlords. Many office spaces are overpriced—flexible leases can save thousands.
- Consider hybrid setups. Keep an office for essential work, but allow employees to work remotely when possible.
Hiring Mistakes: Why Bad Hires Can Cost More Than You Think
A bad hire doesn’t just waste a salary—it drags down productivity, disrupts workflows, and can even hurt your brand reputation.
Imagine the numbers:
- The average cost of a bad hire is 30% of their annual salary
- A FinTech company hired an underqualified developer for $90,000 per year, only to fire them after six months. Cost? $45,000 in salary plus $15,000 in training.
Fix it:
- Hire slowly, fire fast. Don’t rush hiring decisions—take the time to find the right fit.
- Use contract-to-hire models. Test new employees on short-term contracts before committing to full-time.
- Invest in training. A well-trained team is far more efficient than hiring replacements.
Automate to Save: The Tech That Cuts Burn Rate Without Killing Growth
Trimming expenses doesn’t mean cutting staff or slashing budgets.
Smart companies reduce costs by automating tasks that don’t need human input.
Source: Backlinko
How AI & Automation Can Lower Burn Rate (Without Layoffs)
Many routine business tasks can be automated, saving time and money without impacting productivity.
Examples:
- A SaaS company automated customer support with chatbots, reducing support costs by 40% while maintaining response quality.
- A home services business used scheduling software, cutting administrative work by 30 hours per month.
The Best Financial Tracking Tools for Real-Time Burn Rate Monitoring
Knowing how to calculate burn rate is just the first step—tracking it in real-time is what keeps your finances on track.
Best tools by industry:
- SaaS & FinTech: QuickBooks, Baremetrics
- E-Commerce: Xero, Bench
- Home Services: Housecall Pro, Jobber
Fix it:
✅ Set up real-time dashboards. Track cash flow, revenue, and expenses daily.
✅ Get automated alerts. Set notifications when burn rate exceeds a safe threshold.
Investor Red Flags: What Your Burn Rate Tells VCs About You
Investors don’t just look at what is burn rate—they analyze how you manage it.
The Burn Rate Red Flags That Scare Off Investors
What worries investors?
- Burning cash too fast without revenue growth.
- Relying on constant fundraising instead of reaching profitability.
- Not adjusting spending based on market conditions.
How to Present Your Burn Rate in a Positive Way to Secure Funding
What investors want to see:
- A clear burn rate strategy—showing you understand how to balance growth with financial stability.
- A strong revenue plan—investors don’t fund companies that burn cash without a path to profits.
🚀 Burn Rate Isn’t the Enemy—Bad Planning Is
Now you know that the Burn rate is the pulse of your business. Ignore it, and you risk running out of cash before you even have a chance to grow. [A] Growth Agency will manage everything wisely and build financial stability and sustainability.
Remember that investors don’t shy away from burn rate—they expect it. We believe in the power of data to inform and drive every strategy, ensuring our actions are as effective as they are innovative.
What all want to see is a company that understands its financial health and has a clear plan for the future. That’s where we come in.
Your burn rate shouldn’t be a guessing game—it should be a strategic advantage.
Let’s build a future together.
