Burn rate is a metric used to measure a startup's rate of financial expenditure. It is calculated as the amount of money a company spends each month.

It is often used to track a company's operating costs, including salaries, rent, marketing expenses, and other overhead costs.

How to calculate burn rate

Total cash at the start of the month - Total cash at the end of the month = Burn Rate

Burn rate is particularly relevant to startups because it gives an indication of how long a company's current cash balance will last based on its current level of spending.

For startups, burn rate is a critical metric to monitor because it provides insight into the company's financial sustainability.

• A high burn rate might indicate that a startup is spending too much money too quickly, which could lead to a cash flow crisis and put the company's future at risk.

• A low burn rate might indicate that a startup is efficient with its resources and has a better chance of long-term success.

However, a high burn rate at a company that has achieved product-market fit might simply be a strategy to achieve escape velocity faster. At the same time, a low burn rate at a Series A or Series B company might prevent a company from finding product-market fit and/or escape velocity.

Startups typically aim to balance their burn rate with their rate of revenue growth to ensure that they are spending enough to drive growth but not so much that they are running out of cash.

By monitoring burn rate, startups can make informed decisions about their spending, adjust their strategy as needed, and ensure they are on a path to financial sustainability.