Why does Gross Burn vs. Net Burn matter?
The two numbers answer different questions and founders who only track one get surprised by the other. Net burn tells you today's runway, but it is only as reliable as the revenue baked into it — if that revenue is lumpy, one-time, or a handful of large accounts, net burn understates risk. Gross burn tells you what happens if revenue stopped tomorrow, which is the more conservative number to plan against and the one a board should ask for when the revenue line is thin or concentrated. A company that only reports net burn can look far healthier than it is for months, right up until a renewal falls through and burn snaps back toward gross.
What does Gross Burn vs. Net Burn look like in practice?
Suppose monthly spend is $200,000 and monthly revenue is $50,000; net burn is $150,000. If $30,000 of that revenue comes from one customer mid-renewal, the honest planning number sits between the two — closer to gross burn until the renewal is signed. Two founders with the same $150,000 net burn are in very different positions if one earned it from a hundred small, diversified accounts and the other from three large ones, even though the net-burn line looks identical on a spreadsheet.
What are the common mistakes with Gross Burn vs. Net Burn?
- Reporting only net burn to a board when revenue is concentrated in a few accounts, which hides how much of the safety margin depends on those accounts renewing.
- Treating gross burn as the number to manage day-to-day. It is a stress-test figure, not an operating target — using it for both makes spend decisions overly conservative.
- Letting one-time revenue (a services engagement, a grant, a large annual prepay) lower net burn for a single month and reading that month as the new run rate.
- Computing net burn from revenue recognized rather than cash actually collected, which can diverge sharply if payment terms are long.
Related concepts
- Burn Rate and RunwayBurn rate is how much cash you lose per month; runway is how many months of it you have left before the money runs out.
- Default Alive vs. Default DeadA company is default alive if its current growth and spending trends reach profitability before the cash runs out without raising again; default dead if they do not.
- Unit EconomicsWhat it costs to acquire and serve one customer versus what that customer is worth — the question of whether the business works at the level of a single customer.