**Burn Rate Definition**: Monthly cash consumption rate measuring how fast a startup spends capital before achieving profitability.

Critical metric for pre-revenue and early-stage companies ($0-$10M ARR) to forecast runway and plan fundraising timing. **Gross Burn Rate** = Total monthly operating expenses (all cash outflows). **Net Burn Rate** = Gross burn - Monthly revenue (actual cash depletion rate). **Cash Runway** = Current cash balance ÷ Net burn rate = Months until funds exhausted.

Example: Startup has $500k cash, spends $100k/month (gross burn), earns $30k/month revenue → Net burn = $100k - $30k = **$70k/month**.

Runway = $500k ÷ $70k = **7.1 months** before needing fundraise or breakeven.

Investors expect 12-18 month runway post-funding for safety margin; <6 months = emergency fundraising (unfavorable terms).

Typical early-stage burn rates: **Pre-seed** $20-50k/month (3-5 employees, minimal infrastructure). **Seed** $50-150k/month (8-15 employees, product development). **Series A** $150-500k/month (20-50 employees, GTM scaling). **Series B+** $500k-2M/month (50-200 employees, market expansion).

Components of gross burn: **Payroll** 60-75% (largest expense, salaries $80-200k/employee all-in with benefits/taxes). **Office/infrastructure** 10-15% (rent $5-20k/month, cloud hosting AWS/GCP $2-50k depending on scale, SaaS tools $500-5k). **Marketing/sales** 10-20% (paid ads, events, SDR commissions). **R&D/product** 5-10% (contractors, prototyping, testing). **Legal/admin** 2-5% (incorporation, IP, accounting). **Benchmark analysis by stage (2025 VC data)**: Seed companies $75k median monthly burn, 10-12 month median runway, 15-25% burn on R&D, 35-45% on sales/marketing once product-market fit.

Series A $250k median burn, 18-24 month runway, 50%+ on sales/marketing for growth, target 3-5× revenue growth vs burn increase (efficient scaling). **Red flags for investors**: Burn rate growing faster than revenue (unsustainable unit economics).

Runway <9 months without clear path to profitability or next fundraise.

Burn spike without corresponding MRR growth (inefficient capital deployment). **Healthy metrics**: Net burn declining as % of revenue over time (margin improvement).

CAC payback <12 months (customer acquisition costs recovered within year).

LTV/CAC ratio >3× (customer lifetime value justifies acquisition spend).

**Burn Rate Reduction Strategies** (prioritized by impact vs growth risk): **1.

Payroll optimization (60-75% of burn)**: Freeze hiring non-critical roles (finance/HR can outsource to fractional execs $5-10k/month vs $150k+ FTE).

Offshore engineering to Latin America/Eastern Europe ($40-80k vs $120-180k U.S. developer).

Equity-heavy comp for new hires (reduce cash burn 20-30%, grant 0.1-0.5% options vs higher salary).

Furlough underperformers (bottom 10% of team often contributes <5% output).

Typical savings: **$50-150k/month** for 20-person team. **2.

Infrastructure cost cuts (10-15% of burn)**: Downsize office or go fully remote (save $10-30k/month rent + utilities).

Audit cloud spend - rightsize EC2 instances, delete unused S3 buckets, use Reserved Instances vs On-Demand (save 40-60% AWS bill = $5-20k/month).

Consolidate SaaS tools - replace Salesforce + HubSpot + Intercom with all-in-one at 1/3 cost.

Typical savings: **$15-40k/month**. **3.

Marketing efficiency (10-20% of burn)**: Pause paid ads with CAC >6 months payback, focus on organic/content (reduce $20-100k/month ad spend).

Shift from conferences ($20k/event) to webinars ($2k/webinar) for lead gen.

Renegotiate agency contracts or bring in-house (cut 30-50% costs).

Typical savings: **$20-60k/month**. **4.

Vendor negotiations**: Prepay annual SaaS for 20-30% discount (Slack, G Suite, Zoom all offer annual deals).

Extend payment terms with suppliers from Net-30 to Net-60 (preserves $50k+ cash for 30 days).

Barter equity for services (legal, PR, design agencies accept 0.1-0.5% equity in lieu of 50% cash). **5.

Revenue acceleration (reduce net burn without cutting costs)**: Launch premium tier pricing (+30-50% ARPU without marginal cost increase).

Implement annual prepay discount (12 months upfront = 10× MRR instant cash injection).

Upsell existing customers (2-3× easier than new acquisition, $0 CAC).

Target: **+$20-50k MRR/month** = -$20-50k net burn. **Runway extension math**: Starting position: $400k cash, $80k/month net burn = **5 months runway** (danger zone).

After cuts: Reduce payroll $40k (3 roles), infrastructure $10k, marketing $15k, add revenue $15k/month = New burn: $80k - $40k - $10k - $15k + $15k revenue = **$30k/month net burn**.

New runway: $400k ÷ $30k = **13.3 months** (healthy zone).

Saved 8.3 months without new capital. **Critical timing**: Start cuts when runway drops <12 months (allows 3-6 month fundraise process + 3-6 month buffer if delayed).

Communicate transparently with team (explain survival vs growth mode, reset expectations).

Avoid "death spiral" cuts that eliminate all growth investment (sales, product) → stagnant revenue → worse unit economics → need deeper cuts → eventual shutdown. **Balanced approach**: Cut bottom 20% low-ROI spend, maintain top 30% high-ROI activities, preserve core product/engineering team.

Target 30-50% burn reduction while keeping revenue growth positive (even if slower 10% MoM vs 20% previously). **Case study**: Series A SaaS company, $1.2M cash, $200k burn, 6 months runway (crisis).

Actions: (1) Offshore 40% of engineering team, save $80k/month. (2) Cut marketing budget 60%, focus on PLG, save $50k/month. (3) Moved to co-working space, save $15k/month. (4) Launched annual prepay, added $30k/month revenue. (5) Laid off bottom 15% performers (5 people), save $55k/month.

Total burn reduction: $200k/month → **$30k/month** net burn (95% reduction).

Runway: 6 months → **40 months** (3.3 years).

Company reached profitability 18 months later, never raised again, exit $50M acquisition. **Avoid mistakes**: Cutting customer success (increases churn, tanks LTV).

Freezing product development (loses competitive edge).

Eliminating all marketing (pipeline dries up in 3-6 months).

Hiding burn rate from investors (destroys trust, kills future fundraising).

Not tracking unit economics (revenue growth means nothing if COGS/CAC rising faster).