What Is Burn Rate? | Marketing Dictionary
DICTIONARY · BUSINESS

What is burn rate?

The rate at which a business consumes cash over a period.

In plain English

Burn rate is how much cash the business uses up each month beyond what it brings in. Divide the cash you hold by the monthly burn and you get runway, the number of months before the money is gone.

The concept comes from funded startups but applies to any business spending ahead of revenue, including a small business investing in growth or getting through a quiet season.

What to know

Gross and net burn
Gross burn is total monthly outgoings. Net burn is outgoings minus income. Net is the figure that determines runway.
Runway is the decision clock
It tells you how long you have to change the trajectory. Below about six months, options narrow sharply.
Not all burn is equal
Spending on things that produce revenue is investment. Spending on overheads that produce nothing is simply loss.
Review it monthly
Burn drifts upward through small additions. It needs looking at as often as revenue.

Why it matters

Knowing your burn and runway converts anxiety into arithmetic. It tells you whether a marketing investment is affordable, how long you have to prove it works, and when a decision has to be made rather than deferred.

Common mistakes

×Not knowing the number, and therefore not knowing the runway.
×Spending on unproven channels with only a few months of cash left.
×Counting expected revenue that has not been contracted.
×Cutting revenue-producing activity first when reducing burn.

FAQs

How much runway should I keep?

More than the time it takes to change course. Six months is uncomfortable, twelve gives room to make decisions calmly.

Does burn rate apply to small businesses?

Yes, whenever spending exceeds income, including seasonal troughs and periods of investment.

WRITTEN BY TARIQ SALLAM
Marketing Consultant. Entrepreneur. Content Creator.

I'm a marketing consultant, entrepreneur and content creator. I help businesses grow through practical marketing, websites, SEO, content and AI.

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