← Business Metric: Financial (all topics)
Burn rate & runway
What it is
Net cash consumed each month, and how many months of it the current balance funds. They are the central survival metrics for any loss-making business
Gross burn is total spending; net burn is spending less revenue, and the gap between them shows how much revenue is doing
Impact on industries
- Runway is a hard deadline - a business must reach profitability or raise capital before it ends, and the terms worsen as it approaches
- Burn is largely controllable, so a credible path to extending runway is itself a fundable position
- Cutting burn usually means cutting growth, which is the metric investors fund, so the two objectives are directly opposed
- Burn multiple - net burn divided by net new recurring revenue - is the better measure, since it asks what the spending actually bought