SaaS burn rate explained

What burn rate is

Burn rate is how fast a business uses up its cash. It is usually expressed per month. The term comes from venture-backed startups that spend investor money faster than they earn, but it is just as useful for a solo founder paying for servers, tools and maybe a salary out of savings. If you know your burn, you know your runway, and you know how much room you have to experiment.

Gross burn vs net burn

There are two versions, and mixing them up is the most common mistake.

Gross burn = total cash spent in the month

Net burn = gross burn − cash revenue collected in the month

Gross burn tells you the size of your cost base: what it costs to keep the lights on, regardless of revenue. Net burn tells you how fast your bank balance is actually falling. For runway, use net burn. For deciding whether your costs are reasonable, look at gross burn, broken down by category.

When revenue exceeds spending, net burn turns negative. Some people call that negative burn; most just call it profit.

Worked example

A founder running two products, averaged over the last three months:

Revenue collected averaged $1,800 a month, so net burn is $3,400 − $1,800 = $1,600. With $24,000 in the bank, that is 15 months of runway.

Notice the founder salary. Leaving it out would make net burn look like $200 a month and runway look like ten years. If you are paying yourself, it belongs in burn. If you are not yet, run the numbers both ways so you know what a sustainable version of the business looks like.

Common mistakes

• Using one month. A big annual renewal or a slow sales month will swing burn wildly. Average three months.
• Counting booked revenue rather than collected cash. Burn is about money that actually moved.
• Forgetting processor fees and refunds. They are small per transaction and add up.
• Including tax money as available cash. It is not yours to spend.
• Mixing personal and business spending on one card without labelling it, so burn is either inflated or understated.

What's a normal burn?

There is no healthy burn number in isolation. A funded startup might deliberately burn heavily to grow faster. For a bootstrapped indie product, the useful targets are simpler:

• Net burn trending down month over month.
• Runway that is stable or growing.
• A clear date, from your own numbers, when net burn reaches zero.

Venture investors sometimes use a burn multiple (net burn divided by net new ARR) to judge efficiency. It is a fine idea, but it gets noisy when revenue is small, so most indie founders are better served by watching the trend.

Lowering burn

Burn comes down through costs, revenue, or both. In rough order of effort:

1. 1.Audit recurring costs. List every subscription with its billing period and the product it serves. Cancel what nobody uses; downgrade what is oversized.
2. 2.Move to annual billing on tools you are sure to keep, if the discount is real.
3. 3.Right-size infrastructure. Idle staging environments and oversized databases are common leaks.
4. 4.Raise prices for new customers. Small products are often underpriced, and a price change has no cost.
5. 5.Push annual plans for customers. It does not change MRR, but it brings cash forward and lowers short-term net burn.
6. 6.Decide on products that cost more than they earn. Winding one down can extend runway more than any other single change.

Tracking it monthly

Burn is only useful when it is current. At the end of each month, record everything, check recurring costs for anything new, and compare gross and net burn with the previous three months. The monthly close checklist includes this step.

SaaSMon calculates burn and runway from the income and expenses you record, with recurring rules posting predictable costs automatically and budgets per project to flag overspending early. The metrics glossary covers the related numbers: gross margin, CAC and LTV.