How to calculate burn rate
Burn rate calculation is not quite as tough as Fermat's Last Theorem, but a robust understanding of both the core burn formula and its variation is critical for business success.
Gross burn calculation
Gross burn paints a picture of how efficient your company is, regardless of revenues streaming in:
Gross burn rate = cash/monthly operating expenses
Having understood this basic formula for gross burn, you then need to incorporate your monthly overhead costs to attain a picture of your net burn. You can do this with the following formula:
Net burn calculation
Net burn shows the rate at which the company is losing money; if your revenues increase, your net burn rate will decrease.
Net burn rate = cash/monthly operating losses
Now that you can compute your burn rate, how do you know what rate is acceptable?
There's no one-size-fits-all answer to this question. All companies should maintain a burn rate that's sustainable relative to their revenues: if you're growing at a rate of knots and there's inbound interest in funding your company, then a slightly higher burn rate can be satisfactory. If growth is stalling, then you need to look at reducing burn.
You should expect a measure of fluctuation as you scale and as you deal with bumps in the road, but it should remain steady and in the shade of your revenue.