Gross Burn vs Net Burn: Formulas, Example and Which One Sets Your Runway

Gross burn vs net burn: what each one measures

Gross burn vs net burn is the difference between what a startup spends and what it actually loses. Gross burn is total monthly cash spending. Net burn is gross burn minus the cash revenue collected that month. Gross burn shows how expensive the company is to run, and net burn shows how fast the bank balance falls.

Founders often say "our burn is $60,000" without saying which one they mean. That ambiguity is how a team ends up promising investors 15 months of runway while the bank statements say 11. Pick one definition, name it every time, and report both in your monthly update.

The formulas, with one worked example

Gross burn = total cash operating spend in the month. Net burn = gross burn − cash revenue collected. Runway = cash in the bank ÷ net burn.

Take a startup with $400,000 in the bank, $60,000 of monthly spending (payroll $42,000, hosting and tools $8,000, marketing $10,000) and $24,000 of cash collected from customers. Net burn is $60,000 − $24,000 = $36,000. Runway on net burn is $400,000 ÷ $36,000, about 11.1 months. Dividing by gross burn instead gives $400,000 ÷ $60,000, about 6.7 months.

Both numbers are correct; they answer different questions. The 6.7 months is how long you last if every customer left tomorrow, and the 11.1 months is how long you last if revenue holds.

Which one to use for which decision

Use net burn for runway, because runway forecasts when cash reaches zero and revenue offsets part of the spending along the way. Use gross burn for cost control, because it shows what the company would have to cover without customers and where spending is growing. A team that watches only net burn can miss a cost problem hidden by one good revenue month.

Our burn rate formula guide covers how to read both numbers from bank statements, and the cash burn walk-through shows the period-based version.

Net burn depends on revenue you have actually collected

Net burn uses cash collected, not revenue billed. If you invoice $24,000 but customers pay in 45 days, this month's net burn is higher than the invoice suggests and next month's looks better than it is. Annual prepayments swing the other way: one large upfront payment can make net burn look negative for a month before it returns to normal.

Keep one-off cash items separate. A funding round, grant or loan is not revenue and should not reduce net burn, otherwise it hides the real spending trend. In lumpy months, average net burn over three months to see the trend before you act.

How a revenue dip or a cost cut changes runway

Net burn is sensitive to revenue in a way gross burn is not. In the same example, if cash collected falls from $24,000 to $18,000, net burn rises to $42,000 and runway falls from 11.1 to about 9.5 months, with no change in spending. A single lost customer can do this.

Cuts work the other way. Removing $10,000 of marketing lowers gross burn to $50,000 and net burn to $26,000, which stretches runway to about 15.4 months, provided the cut does not reduce revenue. That condition matters: a cut that costs you customers can push net burn back up. Our guide to extending startup runway ranks the levers by how reversible they are.

Three mistakes founders make with burn numbers

The first is mixing definitions: quoting net burn in the pitch and gross burn in the budget. The second is using the best month of revenue as the baseline, so runway looks longer than an average month supports. The third is counting a signed contract or an unpaid invoice as cash.

One habit fixes all three. Write the definition under every burn figure, calculate it from bank balances rather than the accounting system, and keep a worst-case runway on gross burn next to the headline runway on net burn.

What investors read from gross and net burn

Investors rebuild both numbers from your statements. Net burn gives them your runway and, together with new revenue, your burn multiple. Gross burn shows how much of your cost base depends on revenue arriving. A company whose gross burn far exceeds its collected revenue is funded by investors, while one whose revenue covers most of its gross burn is close to default alive.

They also check the trend. Flat gross burn with rising revenue means net burn is falling for the right reason. Rising gross burn with flat revenue means runway is being spent on growth that has not shown up yet, which is acceptable only if you can explain what it buys.

Practice reading burn under pressure

A spreadsheet cannot show how it feels to choose between a hire and six more weeks of cash. Founder Runway runs for 20 turns, with four options on every decision that move cash, burn, MRR and runway. Pick a B2B, B2C or B2G model and a starting stage of Pre-Seed, Seed, Pre-Series A or Series A, then watch how spending and revenue choices shift both numbers.

A run ends as a failure, a promising company, EBITDA positive or high-value exit potential. Replay the same start with a cost-heavy plan and then a lean one, and compare how long the cash lasts.