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Burn Rate refers to the speed at which you deplete cash reserves before reaching profitability.
It helps to measure Runway; the time available for achieving profitability or securing the next round of funding. It's important for managing cash reserves and can inform cost-cutting, investment in growth, hiring, and fundraising timelines.
(Cash at Beginning of Period - Cash at End of Period) / # Months in Period
To calculate Burn Rate, subtract your cash at the end of a period from the cash at the beginning of that period, then divide the result by the number of months in the period.
To reduce Burn Rate, the first step is to do an expense audit: scrutinise all business expenses and cut down on unnecessary costs. Reevaluate all recurring spending including SaaS tools and then focus on creating or improving your expense approval process. This should provide better visibility into expenses.
Don't forget to increase revenue as well as decrease costs. Focus on higher-margin products and customer segments with the greatest LTV:CAC. Try to drive up-sells and cross-sells to maximise ARPC and explore new revenue streams through new products, services, or market segments.
