Financial Glossary
Gross burn rate
Gross burn rate is the total amount of cash a company spends each month across all operating expenses -- payroll, rent, software subscriptions, marketing, contractors, and any other cash outflows -- without netting against revenue. It measures the raw cash consumption of the business regardless of what it earns. Gross burn rate is distinguished from net burn rate (which subtracts revenue from cash outflows) and is most relevant for pre-revenue or early-revenue startups where revenue is not yet sufficient to meaningfully offset expenses. Cash runway is calculated as: Cash on Hand divided by Net Burn Rate (not gross), but gross burn is used to understand the absolute cost structure and where capital is being deployed.
Problem & Application
A SaaS startup has $1.2M in the bank after its seed round. Monthly expenses are: payroll for four people at $45,000 total; AWS and tooling at $4,000; office at $3,500; marketing at $8,000; legal and accounting at $2,500; miscellaneous at $2,000. Gross burn rate = $65,000 per month. The company is generating $8,000 in MRR, so net burn = $65,000 - $8,000 = $57,000. Cash runway at net burn = $1,200,000 / $57,000 = approximately 21 months. A fractional CFO would report both figures to the board: gross burn communicates the absolute cost of operations and how much would be saved by cutting specific line items; net burn is the runway metric that determines fundraising timing. If revenue doubles to $16,000 MRR without changing expenses, net burn falls to $49,000 and runway extends to 24.5 months -- the same cost structure, more time to raise. Monitoring gross burn by category each month also exposes whether discretionary spend (marketing, contractors) is growing faster than the team expects.
In Short
Monitoring gross burn rate is essential for startups and growing businesses, as it helps manage cash flow and ensures financial sustainability.