Gross Burn vs Net Burn: What Each Number Tells You

The gross burn vs net burn split is the first distinction to get right when you track your startup's cash. Gross burn tells you how much cash your company spends in a month. Net burn tells you how much cash you lose after customers pay you. Both come from your bank account, and both feed your runway, but they answer different questions. This guide gives you the formulas, the sign convention that several popular guides get wrong, a worked example, and a rule for when to use each number.

What Is the Difference Between Gross Burn and Net Burn?

Gross burn is all the cash your company pays out for operations in a month: payroll, rent, software, contractors and every other vendor. Net burn is gross burn minus the cash you collect from customers in the same month. Startups.com defines both in cash terms and explains that net burn drives your runway, while gross burn shows the worst case if revenue stops.

• Gross burn = total operating cash paid out in the month
• Net burn = gross burn minus cash collected from customers in the month

The two numbers move apart as revenue grows. The illustrative table below comes from Startups.com, which walks a company from pre-revenue to cash-flow positive.

Before revenue, the two numbers match. The growth-stage company spends more than twice as much as the early company, yet both report the same $100K of net burn in the Startups.com table. Net burn alone hides that difference in scale, which is why you should track both.

Why Does the Sign on Net Burn Matter?

Report burn as a positive number when cash goes down. A net burn of $100K means your bank balance fell by $100K that month. A negative net burn, like the -$50K in the cash-flow positive row from Startups.com, means the company took in more cash than it spent.

Some widely read guides write net burn as revenue minus costs. That formula returns a negative number for a company that is losing cash, and those same guides then flip the sign back in their worked examples. If you paste the backward formula into a spreadsheet, your runway cell divides cash by a negative number and returns a result that means nothing. Pick one convention, write it at the top of your model, and keep it: costs minus collections, positive while you burn.

Should You Calculate Burn From the P&L or From Cash?

Calculate burn from cash. Your P&L records revenue when you earn it and expenses when you incur them. Your bank records money when it actually moves. Startups.com points out that cash burn differs from P&L loss because the P&L includes non-cash items such as depreciation, accruals and stock-based compensation. These items most often make the two numbers disagree:

• Annual prepaid contracts. A customer who pays for a full year up front puts all that cash in your bank in one month. Your P&L spreads it across twelve months as deferred revenue. Net burn drops sharply in the month the cash lands.
• Collections lag. Revenue you invoiced but haven't collected shows up on the P&L but not in the bank. Slow-paying customers make your P&L look better than your cash.
• Capital expenditures. Laptops and equipment leave your bank on the day you pay. The P&L spreads them out as depreciation. Count the cash payment in gross burn.
• Stock-based compensation and depreciation. Both reduce P&L profit but cost you no cash. Leave them out of burn.
• Loan proceeds and equity raises. These add cash but come from financing, not customers. Keep them out of collections so a new round doesn't erase your burn.

Run a quick check each month. Your opening cash, minus net burn, plus any financing, should equal your closing cash. If it doesn't, a transaction is missing or sitting in the wrong bucket.

How to Calculate Gross and Net Burn Each Month

Use your bank statements or your cash flow statement, and follow the same steps every month:

1. Pull statements for every operating bank account and company card for the month.
2. Add up every operating outflow: payroll and payroll taxes, rent, software, contractors, card payments and capital purchases. That total is gross burn.
3. Add up cash collected from customers. Use actual deposits, not invoices sent.
4. Subtract collections from gross burn. The result is net burn, positive when cash falls.
5. Strip out financing flows such as equity raised and loan proceeds.
6. Repeat for the two prior months and average all three months.
7. Divide your current bank balance by average net burn, then by average gross burn, to get two runway figures.

Example: How One Annual Prepay Flatters Net Burn

Ledgerly is a fictional B2B SaaS company with $1.8M in the bank at the end of September 2026. Its spending grows steadily as it hires. In August, one customer paid a $120K annual contract up front.

Now look at how the choice of burn number changes Ledgerly's runway on the same $1.8M:

A founder who reads only August sees 30 years of runway. The trailing three-month average cuts that to 21.6 months, but it still overstates runway, because Ledgerly owes that customer eleven more months of service with no more cash coming in. Spreading the prepay at $10K a month brings August's net burn to $115K and the average to $120K, which matches the April to July trend. That gives 15 months. The gross burn runway of 10 months answers a harder question: how long Ledgerly lasts if every customer stopped paying today.

Which Runway Should You Plan Around?

Runway in months equals cash divided by net burn. A stress-test runway equals cash divided by gross burn. Startups.com uses this math in its own example: $400K of monthly spend against $200K of revenue leaves $200K of net burn, so 8 months of runway implies roughly $1.6M of cash. For the full method, including when to start raising, see how to calculate startup runway.

Plan around net burn runway when your revenue is spread across many customers who renew reliably. Lean on gross burn runway when a few customers make up most of your revenue, when contracts are month to month, or when a downturn could freeze new deals. Before revenue, the two runways are the same, so the distinction only starts to matter once customers pay you.

My take: Measure burn on the average of the last three months, never one month. Then look forward. Your forecast runway, the month cash hits zero given the hires you've already planned, matters more than today's runway, because burn rarely stays flat.

Gross burn also shapes how much you raise. Early rounds pay for the team and product you are about to build, and early revenue is too thin to count on. Our guide on how much a startup should raise walks through sizing a round from your plan.

My take: I size seed and Series A rounds on 18 to 24 months of gross spend. From Series B on, revenue is large and predictable enough that net burn is the right base.

How Does Net Burn Connect to the Burn Multiple?

The burn multiple divides net burn by net new ARR for the same period. It tells you how much cash you spend to add each dollar of recurring revenue. Startups.com gives the example of $500K of monthly burn and $250K of monthly net new ARR, which produces a 2x burn multiple. The same page summarizes bands it credits to David Sacks of Craft Ventures from 2020: under 1x is the best, 1x to 1.5x is great, 1.5x to 2x is good, 2x to 3x is acceptable at growth stage, and above 3x is concerning.

The burn multiple only works if your net burn is right, which is another reason to calculate it from cash on a trailing average. Churn hurts the ratio from the other side, because lost ARR comes straight out of net new ARR. In the BurnRateIQ benchmark library, equity-backed B2B SaaS companies show a median annual gross churn of 10%, from the SaaS Capital 2025 retention benchmarks. The same BurnRateIQ library shows churn shifting with size: the High Alpha 2025 SaaS Benchmarks Report puts median annual gross churn at 8% for companies with $1M to $5M of ARR and 12% for companies with $5M to $20M. For stage-by-stage targets and ways to improve the ratio, read what is a good burn multiple.

See Your Own Gross and Net Burn

BurnRateIQ connects to Xero, Zoho Books or FreshBooks, or takes your uploaded statements, and calculates gross burn, net burn, both runways and your cash-zero date from real monthly actuals. You can explore it in the live demo or get a one-time investor-ready Excel model with live formulas your investors can audit.