Burn Rate Calculator

How to use the burn rate calculator

Open last month's bank statement and sort every payment into one of the four cost boxes. Working from the statement is better than working from memory, because small subscriptions and fees are easy to forget.

1. Team and your own pay: salaries, contractors, freelancers and anything you pay yourself. If you live off savings while you build, count the amount you take out each month.
2. Rent, software and tools: workspace, hosting, subscriptions, insurance and phone.
3. Marketing and sales: ads, events, samples and commissions.
4. Everything else: stock, materials, payment fees, travel and loan repayments.
5. Cash collected from customers: the money that reached your account in the month. Enter 0 if you are not earning yet.
6. Cash in the bank: optional. Add it to see how many months your current burn gives you.

The result updates as you type. The bar shows what share of your costs your revenue already covers. When it reaches 100%, you have stopped burning cash.

The burn rate formula

This calculator works on a cash basis: it counts money when it moves, not when it is invoiced. When people say burn rate without a qualifier, they usually mean net burn. If net burn is zero or negative, you collect at least as much as you spend, and the calculator shows a monthly surplus instead.

A worked example

Say you run a small software product with one part-time contractor. In a typical month you pay $6,000 for the team and your own pay, $1,200 for rent, software and tools, $1,800 for marketing and $1,000 for everything else. Customers pay you $2,500, and you have $75,000 in the bank.

The 12-month figure is the useful one here. At this rate you would need $90,000 to get through a year and you have $75,000, so something has to change before month ten: more revenue, lower costs or new money.

How to read your burn rate and bring it down

A burn rate is neither good nor bad by itself. What matters is what the spending buys. Burn that pays for learning, such as customer interviews, a first version or a small ad test, is doing its job. Burn that pays for things you would keep paying for even if the idea turned out to be wrong is the kind to cut.

• Look at the largest cost line first. In the example above that is the team line, at $6,000 of the $10,000. Cutting a few cheap subscriptions rarely changes the picture.
• Spend after proof, not before. Validate the idea with real conversations before you pay for a full build. A smaller first version keeps burn low while you learn.
• Collect cash earlier. Deposits, pre-orders and annual plans raise the cash you collect without raising your costs.
• Keep your own costs out of the business for longer. If you start on the side, your job covers your living costs and the business burns far less.
• Turn the result into a deadline. Put your net burn into the startup runway calculator to see the month your cash runs out, then decide what you need to prove before then.

If you have not started spending yet, estimate your first months with the startup cost calculator before you commit savings.

What the calculator leaves out

• Change over time. It treats one month as typical. Real costs and revenue move, so repeat it monthly or use a three-month average.
• One-off costs. A laptop, a legal bill or a deposit can make a single month look far worse than usual. Leave them out to see your regular burn, or include them to see that month's true cash loss.
• Timing of payments. Unpaid invoices, bills you have not settled and taxes due later are not counted, because the cash has not moved yet.
• Money from investors or loans. New funding raises your bank balance but is not revenue, so it does not lower your burn. Loan repayments do count as a cost.
• Non-cash accounting items such as depreciation. They appear in a profit and loss statement but do not change your bank balance.

For a month-by-month view, build a cash flow forecast. A forecast like that normally sits in the financial part of a business plan. If you want help writing one, Fonda's business plan has 10 chapters, with sources and an appendix.