Master the essential revenue and financial metrics that drive B2B SaaS success. From ARR and MRR to retention metrics and customer economics, these terms are critical for understanding pipeline health, forecasting growth, and making data-driven decisions.

Burn Rate

Short Definition

Measures how quickly a company is using its cash, which is critical for B2B SaaS leaders because it directly determines runway and how aggressively the team can invest in growth.

Definition

Burn rate is the pace at which a company’s cash balance decreases over time, usually expressed as a monthly figure. It shows how much cash you are “burning” to fund operations before reaching or while maintaining profitability. For SaaS, burn rate is especially important because recurring revenue ramps over time while upfront costs (headcount, product, GTM) are high.

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There are two main flavors of burn rate: gross burn and net burn. Gross burn looks only at total cash outflows, while net burn incorporates revenue to show the true monthly cash loss (or gain, if negative burn).

How to Calculate Burn Rate

Gross Burn Rate

Gross burn is your total monthly operating cash outflows.

Gross Burn Rate = Total Monthly Operating Expenses

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This typically includes salaries, benefits, commissions, rent, tools, marketing, contractors, and other OpEx. Gross burn rate usually excludes one‑off financing activities.

Net Burn Rate

Net burn reflects how much cash you actually lose per month after revenue.

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Net Burn Rate = Total Monthly Operating Expenses − Monthly Revenue

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Alternative runway-style formula over a period:

Net Burn Rate = (Starting Cash − Ending Cash) ÷ Number of Months

Example

Starting cash: $1,000,000
Ending cash 6 months later: $700,000
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Net burn = (1,000,000−700,000) ÷ 6 = $50,000 per month.

If you have $700,000 left and net burn is $50,000, runway ≈ 14 months.

Why Burn Rate Matters

Burn rate governs…
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Runway: How many months you have before needing more capital or breakeven.
Risk posture: Higher burn can be acceptable if growth and efficiency justify it; otherwise it signals overspend.
Investor readiness: Metrics like burn multiple (net burn ÷ net new ARR) are now standard; sub‑1.5 is considered efficient in many SaaS contexts.
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Sales and RevOps leaders care because burn determines hiring plans, quota design, and how aggressive GTM can be; finance uses it to time fundraises and to stress-test “grow vs. conserve” scenarios.

Industry Benchmarks

Burn rate itself is company-specific, but related efficiency patterns are common in B2B SaaS:

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Stage	Typical Net Burn Pattern	Burn Multiple Target
Early-stage (Seed–A)	Higher burn tolerated if ARR growing 100%+	≤ 2.0x preferred
Growth-stage (B–C)	Moderating burn, focus on efficiency	1.0–1.5x common benchmark
Late-stage / pre-IPO	Closer to breakeven or profitable	≤ 1.0x best-in-class

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Runway expectations: many SaaS operators aim for 18–24 months of runway post-raise; below 12 months often triggers spending reviews.

Real-World Examples

A growth-stage SaaS company with $800K monthly OpEx and $500K monthly revenue has net burn of $300K; with $6M cash on hand, runway is ~20 months (6M ÷ 300K). This gives room to continue hiring sales reps, but finance and the CRO tie additional headcount to hitting ARR milestones.
A startup with net burn of $250K/month and only $1.5M in cash (6 months runway) freezes hiring, renegotiates vendor contracts, and shifts to higher-ROI channels until a new funding round is secured.
Leadership tracks burn multiple quarterly; when it rises from 1.4x to 2.3x due to slower ARR growth, the team cuts low-yield marketing programs and re-focuses AEs on higher-ACV segments.

Common Mistakes

Using gross burn only and ignoring revenue, which overstates risk and obscures improving unit economics.
Including one-time financing or investing cash flows (like raising a round or paying a large legal settlement) in the burn calculation, making operational burn look volatile and misleading.
Calculating burn infrequently (e.g., only at board meetings), so hiring and GTM decisions are based on stale data.
Not tying burn to growth outcomes (no burn multiple view), so the company cannot judge whether higher burn is buying efficient ARR growth or just inflating costs.
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The Fix: Standardize a net burn formula that excludes non-operating one-offs, monitor burn and runway monthly in a shared finance/GTM dashboard, and pair burn with burn multiple and ARR growth so leaders can adjust hiring and spend with clear, data-backed thresholds.

Frequently Asked Questions

What is the difference between gross burn and net burn?

Gross burn is total monthly operating cash outflows, while net burn subtracts monthly cash inflows (typically revenue) to show the true monthly cash loss.

How do you calculate runway from burn rate?

Runway (in months) is your current cash balance divided by monthly net burn; for example, $3M cash and $150K net burn ≈ 20 months of runway.

How often should we review burn rate?

Best practice is monthly, with a rolling view of net burn, runway, and burn multiple so hiring and GTM investments can be adjusted quickly if conditions change.

Can burn rate be negative?

Yes. If a company generates more cash than it spends (profitable with positive cash flow), net burn becomes negative, effectively indicating cash generation rather than consumption.

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Last Updated: December 15, 2025
Reviewed by: Ben Hale

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