What is burn rate?

Burn rate is how fast a company is using up its cash, usually stated per month. Gross burn is total monthly spending, and net burn is spending minus the revenue coming in. It matters most for companies that spend more than they earn, because it sets how long their money lasts.

How it works

Net burn = monthly expenses − monthly revenue. If revenue is zero, net burn equals gross burn. The cash balance falls by the net burn each month, and the main variables that change it are hiring, marketing spend and how fast revenue grows. Spending that creates future revenue is an investment, but it raises burn today.

The trade-off is speed against safety. Spending more can grow a company faster, but it shortens the time available to find out whether the growth is working. Burn rate is rarely constant: costs rise as a team grows, and revenue may rise as well, so the net figure can fall or climb. Watching it as a trend matters more than a single month.

Example

Say a startup has 600,000 in the bank, spends 80,000 per month and earns 20,000 per month. Net burn is 60,000. After one month the balance is 540,000. If it hires and expenses rise to 100,000 while revenue stays at 20,000, net burn becomes 80,000 and the balance falls faster. If revenue grows by 5,000 each month, net burn shrinks by 5,000 per month, and the burn would fall to zero after 12 months. These are illustrative numbers.

How to model it in Machinations

Use a cash Pool, a Drain for expenses and a Source for revenue. A Register computes net burn as expenses minus revenue, and a state connection can raise revenue each step by a Lever-set growth. Add an End condition for when the Pool reaches zero. Play and chart the Pool, then change the spending Lever to see how the date of running out shifts.