The gross burn rate describes a start-up’s total monthly expenditure, without taking into account any revenue or income generated. It shows how much capital a company uses up within a given period to maintain its business operations.
This key figure is particularly relevant for start-ups in the growth phase, as it provides insight into how quickly existing funds are being utilised and how long the available capital reserves will last.
Typical costs that are included in the gross burn rate are:
- Staff and salary costs
- Rent and infrastructure costs
- Marketing and sales expenditure
- Software and IT costs
- Research and development expenditure
- other operating expenses
The gross burn rate helps founders to:
- to monitor capital consumption
- to calculate the financial runway
- Identifying liquidity bottlenecks at an early stage
- Planning funding requirements in good time
- Optimising cost structures
Unlike the net burn rate, the gross burn rate does not take revenue into account. It shows only the total monthly expenditure.
Example:
If a start-up incurs monthly costs of 80,000 euros, its gross burn rate is 80,000 euros per month – regardless of whether it generates revenue or not.
For investors, the gross burn rate is a key indicator for assessing a company’s capital efficiency and funding requirements.
innoWerft helps founders to understand key financial metrics such as burn rate and runway, to optimise their financial planning, and to devise sustainable growth strategies for the development of their start-ups.