Managing your startup's burn rate: Control your cash like a boss

Burn rate is one of the most crucial numbers every startup needs to track. Knowing how to calculate and monitor it should be a top priority for any founder, whether you’re just starting out or preparing for Series A funding to scale up. If you’re here, you’re likely looking for reliable, expert guidance through every phase of your journey - and you’ve come to the right place.

First, we’ll cover its basics, why it matters, and the steps to calculate it accurately. You’ll also learn the key differences between burn rate and gross burn rate. This will help you build a solid foundation to track, manage, and report your burn rate to both internal and external stakeholders.

Then, we’ll list smart strategies to help you reduce your burn rate without holding back your company’s growth. Plus, you’ll get a few quick tips for managing cash flow right now - to keep your burn in check and limit your need for external funding. Lastly, we’ll dive into best practices to help you achieve and maintain a healthy rate. This way, you can support the sustainability of your business as you grow.

By the end, you’ll have the confidence and knowledge to grow your startup at the right pace. So, let’s get started.

Key takeaways 

• Your burn rate is your startup’s financial pulse. It shows how quickly you’re using cash and how much time you have before new funding is needed. Think of it as your early-warning system — it tells you when to speed up or slow down.

• Tracking both gross and net burn gives you real insight. Gross burn shows your total spending; net burn shows how much you’re losing after revenue. Understanding both gives you a clearer picture of your true cash runway.
• Smart management goes beyond cost-cutting. Yes, trimming unnecessary expenses helps, but the real power comes from balancing spend with smart revenue growth — through better pricing, new markets, and stronger forecasting.
• The right burn rate keeps growth sustainable. A healthy burn rate doesn’t just preserve capital — it gives you freedom to grow intentionally. The goal isn’t to spend less, it’s to spend wisely with clear visibility into your runway.

Table of contents

• Understanding burn rate in startups
• Calculating burn rates correctly
• Strategies to manage high burn rates
• FAQs

Understanding burn rate in startups

What is the burn rate?

Your burn rate shows how quickly your business spends its available capital. This is usually divided into two key parts: gross burn rate and net burn rate. The gross burn rate looks at total monthly operating expenses, while the net burn rate considers monthly revenue to show the actual reduction in your cash flow.

Burn rate is a term that is well-known in tech and life sciences. But it’s vital for all early-stage businesses. This rate acts as a financial warning system that gives you a heads-up, or sometimes a loud wake-up call, on when funds might run low without extra funding or adjusted operations.

The importance of monitoring burn rate

Monitoring your burn rate can be a game-changer for your business’s survival. For instance, tracking it early helps you pivot quickly when needed. This way, you can make smart choices about cutting costs or raising funds before it’s too late to benefit fully.

Besides knowing when to “tighten your belt,” your rate guides you in planning for growth. You can make thoughtful moves like expanding your team or investing in marketing. Finally, keeping tabs on your burn rate, both now and over time, is key for venture capital funding. Investors want to see that your business balances resources with growth. This balance shows your potential for long-term success.

Calculating burn rates correctly

Not all burn rates work the same way. Let’s break down how to calculate both gross and net burn rates with expert tips on why each matters and when to use them. And it can help you boost your business.

What is gross burn rate?

The gross burn rate is the total amount your startup spends each month. This includes all expenses, like rent, salaries, utilities, and anything that keeps your business running, both practically and financially.

To calculate this, take a clear look at your current monthly costs. Add up everything your business spends each month. That final number is your gross burn rate.

Here’s a simple formula:
Gross burn rate = total monthly cost of business

This number is key to understanding your cash flow and planning ahead confidently.

The other side: net burn rate

Your net burn rate includes revenue, giving investors and stakeholders a clear view of the money lost each month after factoring in income. This figure shows more than just operational costs; it reveals how well your business is balancing those costs with earnings from customers or other income sources.

To calculate it, start with your total monthly business costs (or gross burn rate). Then, subtract it from the revenue you make each month minus the cost of goods sold. The formula ends up looking like this:

Net burn rate = (monthly revenue - cost of goods sold) - gross burn rate

This burn rate is a key measure of your business’s health and sustainability, month over month.

A balancing act: operating costs vs revenue generation

Balancing your operating costs while boosting revenue is essential for reducing net burn and supporting growth. When done consistently, this approach builds a steady path toward long-term success for your business. If it feels overwhelming, you’re in good company. Making these big decisions can often feel like stepping into unknown territory. But, with a few expert tips, you can start shaping smart financial habits and refining your burn rate.

Here are some starting steps our experts suggest to help you manage costs, increase revenue, and set up a strong foundation for your business's financial health.

• Cut unnecessary spending: Every startup's needs are different, so start by trimming costs that won’t impact essential services or lower your team’s morale. Our tip? Focus on reducing expenses that won’t hurt your business’s core functions.
• Ramp up strategic marketing efforts: Many startups feel the urge to dive into advertising or SEO to boost visibility right away. But here’s the key: think strategically. Stick to marketing methods you know are budget-friendly and bring quick results to grow your customer base.
• Stay consistent with your forecasts: Growing a business in uncertain times means watching future cash flow closely. By monitoring these metrics closely using Forecastr, businesses steer clear of financial icebergs before they even appear on the radar.

Strategies to manage high burn rates (beyond cutting costs)

Once you’ve reduced costs, it’s time to tackle the next part of burn rate management: boosting revenue to stretch your runway.

Increasing revenue may sound challenging, right? However, finding new ways to earn money can reduce your burn rate and give you room to grow and experiment. Not sure where to start? Here are some ideas for your next strategy session:

1. Grow your customer base: One way to do this is by reaching new markets or enhancing existing products for upselling. Partnerships can also be a game-changer. Look for opportunities like affiliate marketing or co-branding that fit your brand and audience.
2. Adjust your pricing models: Pricing tweaks don’t look the same for everyone, but value-based pricing often makes an impact. Before making changes, try a quick survey or customer check-in to gather insights.

While this may add a bit to costs, it’s worth it. You’ll gain valuable insights into what customers are willing to pay more for (and what they’re not). This helps you save time and money by focusing on what matters most and staying agile and responsive.

Striking a balance with your burn rate

Calculating both your gross and net burn rates is essential for keeping your business healthy and sustainable. These numbers serve as key indicators of when to grow and when to limit spending, giving insight into when you might need more investment from venture capitalists or stakeholders.

If your burn rate is too low, you could miss growth opportunities. But, if it’s too high, you risk financial burnout or even failure. So, finding the right balance is vital, and that’s where tools like Forecastr can be a game-changer. It provides the historical data you need to make smart, strategic moves at every growth stage.

Curious to see it in action? Book a demo today and start planning with confidence.