Definition
Gross burn measures a company's total cash outflow over a specified period, most commonly a month. It is used to understand how much cash the business is consuming through its operating activities before considering cash inflows such as customer payments.
Gross burn is particularly relevant for startups that are investing heavily in product development, hiring, sales, marketing, or expansion.
Unlike net burn, gross burn does not subtract operating cash inflows.
How is gross burn calculated?
A simplified calculation is:
Gross Burn = Total Cash Outflows During the Period
For example, suppose a startup spends during one month:
$200,000 on salaries
$50,000 on marketing
$25,000 on software and infrastructure
$25,000 on other operating costs
Its gross burn is:
$200,000 + $50,000 + $25,000 + $25,000 = $300,000
The company has a monthly gross burn of $300,000.
Gross burn vs. net burn
The key difference is whether cash inflows are taken into account.
Gross Burn | Net Burn | |
|---|---|---|
Cash outflows | Included | Included |
Cash inflows | Not deducted | Deducted |
Example outflows | $300,000 | $300,000 |
Example inflows | $100,000 | $100,000 |
Burn | $300,000 | $200,000 |
Using the example above:
Gross burn = $300,000
Net burn = $300,000 − $100,000 = $200,000
Gross burn therefore shows the scale of cash expenditure, while net burn shows the resulting reduction in cash under the relevant assumptions.
Why does gross burn matter?
Gross burn helps founders understand the cost of operating the company independently of how much revenue it currently generates.
It can help answer questions such as:
How expensive is the current operating model?
How quickly are expenses increasing?
Which costs are driving cash consumption?
How much capital is required to maintain current operations?
What would happen if revenue temporarily declined?
It can also help investors understand the company's spending profile.
What typically contributes to gross burn?
Gross burn can include cash payments associated with:
Employee compensation
Contractors
Marketing
Product development
Software
Cloud infrastructure
Rent
Professional services
Travel
Insurance
Other operating costs
The appropriate calculation should use a consistent definition of which cash outflows are included.
Gross burn and hiring
Hiring can materially increase gross burn.
Suppose a startup has monthly gross burn of $250,000 and plans to hire five additional employees at a combined monthly employment cost of $75,000.
If other costs remain unchanged:
New gross burn = $250,000 + $75,000 = $325,000
The founders should consider the additional burn alongside the expected contribution of those hires to product development, revenue, or other business milestones.
Gross burn and runway
Gross burn can be used as one input into runway analysis, although net burn is generally more informative when estimating how quickly available cash is being depleted.
For example, a company has:
$2 million available cash
$300,000 monthly gross burn
$100,000 monthly cash inflows
Its approximate net burn is:
$300,000 − $100,000 = $200,000
Its simplified runway is therefore:
$2 million ÷ $200,000 = 10 months
Using gross burn alone would produce six to seven months, which does not account for the company's cash inflows.
Gross burn and growth
A high gross burn is not automatically a problem.
A startup may deliberately increase its spending because it is:
Hiring aggressively
Building a major product
Entering new markets
Increasing sales capacity
Investing in research and development
The more important question is whether the expenditure is producing sufficient progress relative to the capital being consumed.
Gross burn becomes more informative when examined alongside growth, revenue, margins, customer acquisition, and runway.
Gross burn vs. operating expenses
Gross burn is a cash-based operating metric, while operating expenses are an accounting concept.
The two can differ because accounting expenses may include non-cash items or recognise costs differently from when cash actually moves.
For example, depreciation is an accounting expense but does not represent a current-period cash outflow.
Conversely, changes in working capital can cause cash payments and accounting expenses to occur at different times.
For cash planning, founders should therefore use actual or forecast cash movements rather than treating accounting expenses as identical to gross burn.
Example
A startup begins a month with $2 million in cash.
During that month it pays:
$180,000 in salaries
$40,000 in marketing
$30,000 in infrastructure
$20,000 in other operating costs
Its gross burn is:
$180,000 + $40,000 + $30,000 + $20,000 = $270,000
During the same month, it receives $90,000 from customers.
Its approximate net burn is:
$270,000 − $90,000 = $180,000
The two metrics tell different parts of the story.
Common misconception
Gross burn tells you exactly how long a company's cash will last.
No.
Gross burn does not account for cash inflows.
A company with $2 million in cash and $300,000 monthly gross burn could have very different runway depending on whether it receives $0, $100,000, or $250,000 in monthly cash inflows.
For runway analysis, the relationship between available cash, cash inflows, and cash outflows is more informative.
