Operational Excellence
Can You Calculate Your Burn Rate and Runway?
Burn Rate
Your burn rate is how much cash your company consumes each month. To calculate it, you first need to know your revenue.
Formula: Revenue − Spend = Burn
If you are not generating any revenue, your burn is simply whatever you spent last month. Most startups are not profitable — that is normal. It takes investment to grow a business. In startups we call it "burn" to frame the urgency, but in reality burning cash just means you are losing money.
If your burn varies significantly month to month, take a three-month average for a more reliable figure.
Burn Multiple
VCs sometimes use the Burn Multiple to assess product-market fit and capital efficiency. It measures how much a startup burns in order to generate each incremental dollar of ARR.
Formula: Net Burn ÷ Net New ARR
David Sacks and Craft Ventures use the following rule of thumb:
| Burn Multiple | Efficiency |
|---|---|
| Under 1x | Amazing |
| 1 – 1.5x | Great |
| 1.5 – 2x | Good |
| 2 – 3x | Suspect |
| Over 3x | Bad |
A low burn multiple signals that you are generating growth efficiently. A high burn multiple suggests you are spending too much to acquire each new dollar of revenue.
Runway
Runway is how many months you can continue operating before you run out of money at your current rate of spend.
Formula: Cash in Bank ÷ Monthly Burn = Runway (months)
If you are profitable, your runway is infinite.
Key benchmarks
- 18 months of runway after fundraising is the recommended minimum
- 6 months should be reserved for your next fundraising process — it takes longer than founders expect
Why tracking runway matters
Keeping a close eye on runway forces spending discipline. If you can measure it, you can manage it. Founders who ignore runway tend to find themselves in a crisis with no time to fix it.