How to calculate burn rate and runway

Burn rate and runway are the two numbers that decide whether your startup gets another year to find product-market fit. Here are the exact formulas, a worked example, and a calculator you can use without leaving the page.

1. Gross burn vs. net burn

Gross burn is every dollar that leaves the business in a month — payroll, contractors, SaaS subscriptions, hosting, rent, ads, and set-aside taxes.

Net burn subtracts the cash you actually collected in the same month (after processor fees, chargebacks, and refunds). Net burn is the number that shrinks your bank balance, so it's the one runway is built on.

Gross burn = total monthly cash out
Net burn   = gross burn − monthly cash in

2. The runway formula

Runway (months) = cash on hand ÷ net burn

If net burn is zero or negative, you're cash-flow positive and runway is effectively unlimited at the current pace — though a single churned enterprise customer can flip that overnight.

3. A worked example

A two-person SaaS has $120,000 in the bank. Monthly cash out is $18,000 (two salaries, hosting, tools, and a 30% tax set-aside). Monthly net collections from Stripe are $8,000.

• · Gross burn: $18,000/mo
• · Net burn: $18,000 − $8,000 = $10,000/mo
• · Runway: $120,000 ÷ $10,000 = 12 months

Grow net collections to $12,000 and net burn drops to $6,000 — runway jumps from 12 to 20 months without cutting a single expense.

Try it with your numbers

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4. How much runway is healthy?

• · 18+ months — comfortable. Focus on growth, not fundraising.
• · 12–18 months — the standard target after a raise.
• · 6–12 months — start a raise or a cost review now.
• · Under 6 months — red flag. Cut, raise, or grow revenue immediately.

5. Three mistakes founders make

1. Using revenue instead of collected cash. Invoiced MRR that hasn't landed in the bank doesn't extend runway.
2. Forgetting quarterly taxes. Set aside ~25–30% of profit every month, or a single tax bill can erase a quarter of runway.
3. Averaging over a good month. Use a trailing 3-month average so one big deal doesn't hide the trend.

Frequently asked questions