Burn rate: gross versus net, and why it matters

Burn rate is how fast you spend cash. It is the most quoted number in a startup and one of the most misread, because founders use one word for two very different things.

Gross burn is what you spend

Gross burn is total cash out in a month: payroll, rent, software, ad spend, everything. It measures the size of your engine. It says nothing about whether the company is closing the gap on its own.

Net burn is what you actually lose

Net burn is cash out minus cash in. It is the number that drains the bank. A company with high gross burn but strong revenue can have modest net burn, while a pre-revenue company's gross and net burn are the same. Runway is built on net burn, not gross.

Quote gross burn to describe your engine. Quote net burn to describe your survival.

What a healthy burn looks like

There is no universal target, but there are useful checks:

• Net burn should buy visible progress: revenue, product, distribution, not just activity
• Runway from net burn should comfortably clear your next milestone or raise
• A rising net burn with flat revenue is the pattern to catch early

Cutting it without cutting muscle

When you need to extend runway, look at net burn first. Sometimes the fastest lever is not a spend cut but a collection: an overdue invoice pulled in this month lowers net burn without touching the team. Seeing gross and net side by side, live, is how you find those levers before the crunch.