Burn Rate and Runway: Managing Your Cash Flow and Avoiding Bankruptcy
Burn Rate measures how fast your SaaS is burning through cash each month. Runway indicates how many months you have left before bankruptcy if nothing changes. For example, with €500K in the bank and a burn of €50K/month, you have 10 months of runway.
Rule of thumb: Maintain a minimum of 12-18 months of runway to stay in a position of strength.
Table of Contents
What is burn rate?
Burn rate is the speed at which your company is consuming cash. In other words: how much cash are you losing each month?
If you had €600K in the bank on January 1st and €550K on January 31st, your January burn rate is €50K.
Unlike the P&L (income statement), burn rate measures actual cash. You can be profitable on paper but bankrupt in cash. For example, if your customers pay within 60 days, you collect €50K in January but your fixed costs (salaries, AWS, etc.) are €80K. Result: +€20K on P&L but -€30K in actual cash.
Gross burn vs net burn
Gross burn represents your total monthly expenses (salaries, marketing, infrastructure, offices, etc.) without considering revenue. If you spend €60K on salaries, €20K on marketing and €20K on ops, your gross burn is €100K/month.
Net burn deducts collected revenue from your expenses. This is the metric that determines your runway. With a gross burn of €100K and €40K in collected revenue, your net burn is €60K/month.
Use gross burn to understand your cost structure and net burn to calculate your runway. A high gross burn with low net burn signals strong revenue growth. The opposite indicates an acquisition problem.
Need a clear picture of your runway?
Interpreting your runway and taking action
Runway > 12 months
You're in a position of strength. Start preparing for a fundraise 6 months before you actually need it (a complete fundraise takes 6-9 months).
Watch the timing: aiming for more than 18 months of runway presents a significant dilution risk. In 18 months, you create a lot of value, but at the time of fundraising this value remains hypothetical and investors won't value it as well.
You can also continue the path to profitability if you prefer to bootstrap.
Runway 6-12 months
Risk zone. Launch a fundraise immediately if your growth is strong. Otherwise, reduce burn drastically. Never count on "I'll raise in 2 months" — the process takes 6-9 months minimum.
Runway < 6 months
Critical situation. Emergency actions: drastic burn reduction (layoffs, cut marketing), bridge financing from existing investors, or seek an acquirer (survival M&A). At this stage, 80% of startups die.
Strategies to reduce burn rate
Optimize salary structure. Salaries represent 60-70% of typical burn. Favor offshore/nearshore (Paris dev €70K vs Portugal €40K), contractors for non-core skills (design, content), and more equity for less cash (€60K → €50K + 0.5% equity).
Cut ineffective marketing. Calculate your CAC by channel and double down on effective channels (SEO at €150 CAC, 3-month payback) while cutting costly channels (LinkedIn Ads at €900 CAC, 18-month payback).
Optimize cloud infrastructure. Reserved instances (-40%), spot instances (-60% on batch jobs), S3 lifecycle policies (-30% storage). A non-optimized AWS at €15K/month can drop to €8K/month (-47%).
Offer upfront annual payments. Offer 2 months free for annual payments. If 5/10 customers opt for annual at €1,000, you collect €5.5K immediately vs €1K monthly (+450% cash influx).
Renegotiate all your contracts. In optimization phase, ask for a 30% discount for 12 months or threaten to downgrade/churn. 50% of vendors accept.
Layoffs (as a last resort). If your burn is critical with no alternative, calculate the necessary reduction and act quickly. Communicate with transparency, respect legal severance, and offer outplacement support.
Burn rate and growth: the trade-off
Measure your capital efficiency by dividing New ARR generated by cash burned. If you add €600K of ARR while burning €600K over 12 months, your ratio is 1.0x (good). A ratio above 1.0x is excellent, between 0.5x and 1.0x is average, below 0.5x is inefficient.
Favor high burn if you're in a market land-grab (winner-takes-all), your unit economics are validated (LTV:CAC ratio above 3.0x), and your runway exceeds 18 months. Favor low burn if your Product-Market Fit isn't validated, your unit economics are broken, your runway is below 12 months, or if the market is mature.
How to calculate your runway
Your runway indicates how many months you have left before hitting €0 if nothing changes.
With €500K in the bank and a net burn of €50K/month, you have 10 months of runway.
Adjusted runway: dynamic projection
The simple formula ignores the growth of your revenue (which reduces burn) and the increase in your costs (which increases it). For a more realistic calculation, the adjusted runway integrates the linear evolution of burn over time.
1. Assumption: burn decreases linearly
Burn(t) = Burn₀ - (g - c) × t
2. Integration of cash consumed until runway R
Cash₀ = ∫₀ᴿ Burn(t) dt
Cash₀ = ∫₀ᴿ [Burn₀ - (g - c) × t] dt
Cash₀ = Burn₀ × R - (g - c) × R² / 2
3. Solving the quadratic equation for R
Legend:
This formula assumes that your burn decreases linearly over time thanks to MRR growth net of cost increases.