Burn rate is the speed at which a company is spending its cash reserves. Gross burn rate is total monthly operating expenses. Net burn rate is gross burn minus revenue — the actual cash consumed each month. For pre-revenue startups, gross and net burn are the same. For revenue-generating companies, net burn is the more relevant metric for runway calculations.
What is a healthy burn rate for a startup?
There is no universal 'healthy' burn rate — it depends on stage, funding, and growth rate. The key benchmark is the efficiency ratio: net burn divided by new ARR added (burn multiple). Below 1.0x is excellent; 1.0-1.5x is good; above 2.0x is inefficient. A $100K/month net burn that adds $120K in new ARR monthly is more defensible than $50K burn adding $30K ARR.
What percentage of burn should payroll be?
For most early-stage startups, payroll (including benefits and contractors) represents 60-80% of gross burn. This is normal. However, high payroll burn means runway is highly sensitive to headcount decisions — each engineer or senior hire adds 3-6 months of burn reduction potential if eliminated.
How do investors evaluate burn rate?
Investors look at burn multiple (net burn / new ARR), months of runway, and payback period on new hires. During fundraising, expect investors to ask: at what revenue will you reach breakeven? How long does it take to recover the cost of a new hire? What's your monthly burn sensitivity if you freeze hiring?