What is Gross Burn vs Net Burn?
Gross burn is your total monthly spending, everything that goes out the door. Net burn is spending minus revenue, the actual cash you're losing each month. The difference is your revenue offset.
A company spending $100K/month with $40K revenue has $100K gross burn but only $60K net burn. Revenue extends runway by reducing the actual cash drain.
Why Both Metrics Matter
Gross burn shows operational scale and cost structure. Net burn shows actual cash consumption and runway. You need both to understand financial health.
Investors often ask about both. Gross burn reveals what it costs to run the business. Net burn reveals how quickly you'll need more capital.
How to Calculate Gross Burn and Net Burn Step by Step
Step 1: Pull your bank statements for the month. You want actual cash movements, not accrual accounting numbers.
Step 2: Total all cash outflows. That's Gross Burn.
- Payroll: $110,000
- Rent/co-working: $8,000
- Software & tools: $6,500
- Cloud infrastructure: $12,000
- Marketing spend: $15,000
- Contractors: $9,000
- Insurance/legal: $4,500
- Everything else: $5,000
- Gross Burn: $170,000
Step 3: Total all cash inflows. That's revenue.
- Customer payments received: $62,000
- (Exclude fundraising proceeds. That's not operating revenue)
Step 4: Subtract revenue from Gross Burn. That's Net Burn.
- Net Burn = $170,000 - $62,000 = $108,000
Step 5: Calculate runway from both.
- Cash in bank: $840,000
- Gross Burn runway: $840K ÷ $170K = 4.9 months (worst case, if revenue goes to zero)
- Net Burn runway: $840K ÷ $108K = 7.8 months (current trajectory)
Step 6: Use a 3-month rolling average. Single months are noisy. Average both metrics over the last 3 months for planning. Use Net Burn for investor conversations and runway planning. Use Gross Burn to understand cost structure and identify where to cut.
Common mistakes founders make:
- Only tracking one metric (you need both for different purposes)
- Using accrual numbers instead of actual cash movement
- Forgetting irregular expenses (annual software contracts, quarterly tax payments)
- Telling investors Gross Burn when they asked for Net Burn (or vice versa)
Runway Calculations
Runway can be calculated from either, but net burn is more relevant. Gross burn runway assumes zero revenue. Net burn runway reflects your actual cash consumption rate.
Further Reading
From Burn To Build: How Smart Founders Flip The Script On Startup Survival
Formula
Gross Burn = Total Monthly Operating Expenses
Net Burn = Total Expenses - Total Revenue
Net Burn = Gross Burn - Revenue
Example
Your SaaS startup tracks monthly cash flow:
- Total expenses (Gross Burn): $200,000
- Revenue: $75,000
- Net Burn: $200,000 - $75,000 = $125,000
With $1.5M in the bank:
Gross Runway = $1.5M ÷ $200K = 7.5 months
Net Runway = $1.5M ÷ $125K = 12 months
Revenue gives you 4.5 extra months of runway.