What are burn rate and runway?
Burn rate is how fast a company spends its cash. Gross burn is total monthly spending — payroll, tools, rent, ads. Net burn subtracts the revenue that comes in, so it’s how much the bank balance actually falls each month. Runway is how many months that balance lasts at the current net burn.
The flat-revenue runway (cash ÷ net burn) is the cautious number. If revenue is growing, net burn shrinks every month and the real runway is longer — and if revenue grows fast enough, it overtakes expenses before the money runs out. Paul Graham calls a startup in that position default alive.
Burn rate and runway formulas
Gross burn = Monthly expensesNet burn = Monthly expenses − Monthly revenueRunway (flat revenue) = Cash ÷ Net burnRevenue in month m = Revenue today × (1 + monthly growth)^mDefault alive = Revenue ≥ Expenses before cash reaches 0Worked example
- A SaaS has $600,000 in the bank, $20,000 of monthly revenue and $70,000 of monthly expenses.
- Gross burn = $70,000. Net burn = $70,000 − $20,000 = $50,000 a month.
- Flat-revenue runway = $600,000 ÷ $50,000 = 12 months.
- Revenue has been growing 6% a month. Revenue would need to reach $70,000 — 3.5 times today — which at 6% takes 22 months. Cash runs out at about month 17.6. Default dead, but close.
- At about 6.2% monthly growth it becomes default alive. At 8%, revenue covers expenses in month 17 and cash bottoms out around $135,000 on the way.
That’s why the growth rate deserves as much attention as the burn: a couple of points of monthly growth is the difference between needing to raise money and not. It also shows how fragile the conclusion is — a company that’s barely default alive becomes default dead after one slow quarter.
Benchmarks: default alive and burn multiple
| Benchmark | Guideline | Source |
|---|---|---|
| Default alive | At current expenses and recent revenue growth, the company reaches profitability on the money it has left | Paul Graham, “Default Alive or Default Dead?”, 2015 |
| Burn multiple = net burn ÷ net new ARR | Under 1x amazing · 1–1.5x great · 1.5–2x good · 2–3x suspect · over 3x bad | David Sacks, “The Burn Multiple” |
How much runway is “enough” depends on your plan. If you intend to raise, remember that fundraising takes months and you want to start well before the last few; if you intend to reach profitability, the default-alive check is the one that matters.
Common runway calculation mistakes
- Using gross burn for runway. Cash ÷ gross burn ignores revenue and understates runway; cash ÷ net burn is the standard.
- Assuming expenses stay flat while planning to hire. If the plan adds three engineers next quarter, runway shrinks the day they start. Run the numbers with next quarter’s costs.
- Projecting a best-month growth rate. Use the average of the last several months, not the best one — and remember growth rates tend to fall as revenue grows.
- Counting bookings as cash. An annual contract signed but not paid isn’t in the bank; annual prepayments collected up front, meanwhile, flatter one month’s revenue.
- Forgetting irregular costs. Annual software renewals, taxes and deposits don’t show up in an average month but do leave the account.
- Treating runway as a deadline to act. By the time you have three months left, most options — raising, cutting, pivoting — are already harder.
How VisitTrack helps with the revenue side of runway
Cash and expenses come from your bank and accounting — VisitTrack doesn’t see them. What decides whether a company is default alive is mostly the revenue growth rate, and that’s where VisitTrack helps: it shows which channels bring the customers that growth comes from.
- Connect your payment provider with revenue attribution. Each payment is attributed to the source, campaign and landing page of the visit that earned it; refunds are shown separately.
- Read revenue over time and by source on the Revenue tab to see which channels are actually growing.
- Track signups as custom events so you can see the full path from visitors to signups to payments.
- Work out how much traffic your growth target needs with the traffic to revenue calculator, and what each customer costs with the CAC calculator.
Frequently asked questions
How do you calculate burn rate?
Gross burn is your total monthly expenses. Net burn is monthly expenses minus monthly revenue. A company spending $70,000 a month with $20,000 of revenue has a gross burn of $70,000 and a net burn of $50,000.
How do you calculate runway?
Divide the cash in the bank by the monthly net burn. $600,000 at a $50,000 net burn is 12 months of runway. That assumes revenue stays flat; with growing revenue, net burn shrinks each month and runway is longer.
What is the difference between gross burn and net burn?
Gross burn is everything you spend in a month; net burn is what you spend minus what you earn. Net burn is how much your bank balance falls each month, so it’s the one used for runway. Gross burn shows your cost base regardless of revenue.
What does default alive mean?
A term from Paul Graham: a startup is default alive if, with its expenses held where they are and revenue growing at its recent rate, it reaches profitability before running out of money. If it doesn’t, it’s default dead — it needs to raise money, cut costs or grow faster.
How many months of runway should a startup have?
Enough to reach the next milestone that changes your options — profitability or a fundraise — with a buffer. Fundraising itself typically takes months, so founders planning to raise usually start well before runway gets short.
Does revenue growth change runway?
Yes, a lot. With $600,000 in cash, $20,000 of revenue and $70,000 of expenses, flat revenue gives 12 months; 6% monthly growth gives about 17.6 months; around 6.2% or more means revenue overtakes expenses before the cash runs out.
Related tools and guides
Stop calculating by hand — measure it automatically
VisitTrack tracks visitors, goals, funnels and revenue from Stripe, Paddle, Polar, Lemon Squeezy and Razorpay, so these numbers are always on your dashboard. Cookie-free, one script tag, 14 days free.
14-day free trial · No card required · Cookie-free · Cancel anytime
Or explore the live demo first →