Burn rate is how much cash your company spends each month, and runway is how many months you can keep operating before you run out. You calculate runway by dividing the cash you have by your average monthly net burn. If you hold $600,000 and burn $50,000 a month, you have twelve months of runway. The two numbers together answer the question every founder and investor cares about: how long until you need to raise again or turn profitable.
Why investors watch burn rate first
Burn rate is a blunt measure of survival. It tells an investor how disciplined the team is and how much time the business has to prove itself. A high burn with little progress reads as risk; a controlled burn that buys real milestones reads as a team that knows what it is doing. That is why burn and runway sit near the front of any set of financial projections a founder shows.
Gross burn vs net burn
There are two versions, and the difference matters. Gross burn is your total monthly operating spend: payroll, rent, software, marketing, everything going out. Net burn subtracts the revenue coming in. If you spend $100,000 and earn $30,000, your gross burn is $100,000 but your net burn is $70,000. Runway is calculated on net burn, because revenue extends your runway.
How to calculate runway
The formula is simple: runway = cash on hand divided by average monthly net burn. Use a three-month average so a single unusual month does not distort it. With $750,000 in the bank and an average net burn of $60,000, you have about twelve and a half months. Recompute it every month, because both the cash balance and the burn move.
What is a healthy burn rate and runway?
The long-standing rule of thumb is to keep 12 to 18 months of runway, though many teams now aim for 18 to 24 months, and as much as 24 to 36 months when the fundraising market is tight, given how long a round can take to close. The practical signal: start raising with 9 to 12 months left, and never let runway fall below about 6 months during an active raise, when you have the least leverage. There is no universal benchmark for a healthy burn; it is only healthy if it is buying progress toward the milestones that unlock your next round.
Need to know exactly how long your cash lasts?
We build a model that tracks burn, runway, and scenarios so you can see the impact of every hire before you make it. Send your numbers for a model quote within a business day.
Build my financial modelBurn rate by stage
Burn scales with stage. Pre-seed teams often burn under $10,000 to $20,000 a month; seed-stage software startups commonly run $50,000 to $150,000 as they add engineers and a first sales hire. What matters is the relationship between burn and growth: spending more is fine if revenue or key metrics are growing faster. Tracking your customer acquisition cost and lifetime value shows whether that spend is actually efficient.
How to extend your runway
- Cut non-essential spend before it compounds, starting with the largest line items.
- Grow revenue, which directly lowers net burn.
- Delay or stage hires, since payroll is usually the biggest driver.
- Raise before you are desperate, while the numbers still look strong.
Where burn fits in the bigger picture
Burn and runway connect to the rest of your fundraising math: the dilution on your cap table and the valuation you can support. If you want these numbers built and stress-tested in one model, our financial modeling service delivers an editable model with burn, runway, and scenario toggles that hold up in diligence.
