What is burn rate?
Burn rate is how much more cash a company spends each month than it brings in. Gross burn is total monthly cash spending; net burn is that spending minus the cash coming in from customers. Net burn is the figure investors usually mean, and together with the cash balance it tells you how long the company can keep operating.
Why it matters to a revenue leader
Sales headcount is often one of the largest spending lines at a venture-backed company, so the hiring plan moves burn directly. New sellers add cost months before they add collected revenue, which raises burn during ramp. A revenue leader who understands net burn can make the case for hiring in the terms the CFO and board use.
How to calculate it
Gross burn = Monthly cash operating expenses. Net burn = Monthly cash expenses - Monthly cash collected.
Common mistake: using bookings or recognized revenue in place of cash collected, which understates burn when customers pay late.
Example
Fictitious numbersA company spends $900,000 a month and collects $600,000 from customers, for a net burn of $300,000. Hiring 5 sellers at $15,000 a month each, fully loaded, adds $75,000 to monthly burn right away, while their first deals may not be paid for until month 6.
"How much does each new seller add to net burn before their first collected dollar?"
Sources
- SEC.gov | Glossary checked 9 Oct 2026
- Burn Rate - How to Calculate Burn Rate & Its Importance checked 9 Oct 2026