How to calculate burn rate, runway, and growth rate

Executive overview

Three metrics every early-stage founder must know: burn rate, runway, and growth rate. Investors will ask for all three — you should have them memorised.

Burn rate measures monthly cash outflow minus cash inflow (not profit and loss). Runway is how many months until cash runs out. Growth rate measures how fast revenue is growing — and must be compounded.

Miscalculating growth rate in front of an investor signals either incompetence or dishonesty.

Burn rate and runway

• Burn rate = total cash out in a month minus cash in
• Cash flow only — a signed contract that pays next year does not improve your burn rate
• Runway = cash in bank divided by burn rate
• Example: $200 in bank, $10/month burn = 20 months runway
• If cash in or expenses fluctuate, build a monthly financial forecast to estimate runway
• Review both metrics weekly

Growth rate

• Measures revenue growth, not cash — a signal that you've built something people want
• Formula: (this month's revenue ÷ last month's revenue) − 1, expressed as a percentage
• Must be expressed as CMGR (compounded monthly growth rate) — the denominator grows as revenue grows
• Common mistake: $100 in January → $600 in July looks like 100% growth, but CMGR is ~35%
• Presenting non-compounded growth to an investor reads as unsophisticated or misleading
• Seasonal businesses can use quarterly or annual growth rate — be explicit about what you're reporting

Recurring vs non-recurring revenue

• Recurring revenue: customers keep paying by default (e.g. subscriptions); more predictable, valued more highly in venture
• Non-recurring revenue: one-off purchases (e.g. e-commerce widgets)
• MRR (monthly recurring revenue) is only appropriate if your revenue is genuinely recurring
• Misusing MRR terminology destroys investor trust