5:59

Tim Brady - How do you calculate burn rate, runway and growth rate?

Name: Tim Brady - How do you calculate burn rate, runway and growth rate?
Uploaded: 2021-07-21T21:48:05.912Z
Duration: 5 min 59 s
Description: Burn rate is monthly cash outflow minus cash inflow (cash flow, not profit/loss); runway is cash on hand divided by burn rate. Growth rate is month-over-month revenue growth expressed as a compounded percentage (CMGR). Investors require these metrics; common mistakes include using linear growth instead of compounding and mislabeling nonrecurring revenue as recurring.

From Y Combinator · Published Jul 21, 2021 · Watch on YouTube

TL;DR

Burn rate is monthly cash outflow minus cash inflow (cash flow, not profit/loss); runway is cash on hand divided by burn rate. Growth rate is month-over-month revenue growth expressed as a compounded percentage (CMGR). Investors require these metrics; common mistakes include using linear growth instead of compounding and mislabeling nonrecurring revenue as recurring.

Key insights

Burn rate measures cash flow, not profit and loss; a customer agreeing to pay later does not improve burn rate.
Runway calculation becomes more complex when cash inflows or expenses fluctuate; a monthly financial forecast is then needed.
Growth rate should always be a compound number (CMGR) because the denominator grows as revenue grows.

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