Net Burn Is the Number
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runway (months) = cash in bank ÷ net monthly burn
net burn = operating costs − revenue
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Gross burn ignores revenue and always looks worse. Net burn is what actually leaves the account, and it is the figure runway must be calculated from — but track both, because a company with high gross burn and matching revenue is far more exposed to a revenue shock than one with low gross burn.
Flat Burn Is a Fiction
The single-division answer assumes burn stays constant. It never does:
- Hiring increases it. Each hire adds salary plus 20–30% in employer costs, tooling and
- Revenue growth decreases it, and revenue growth is the only thing that extends runway
- Annual costs land unevenly. Insurance, audits, compliance and prepaid software arrive
Build a month-by-month projection rather than dividing once. The divided figure is a sanity check, not a plan.
The Fundraising Threshold
A raise takes three to six months from first conversation to money in the bank, and longer in a difficult market. That means:
| Runway remaining | Position |
|---|---|
| 18+ months | Comfortable; raise from strength |
| 12–18 months | Start the process now |
| 6–12 months | Urgent; terms will reflect it |
| Under 6 months | Investors know, and will price it |
Default Alive
Paul Graham's framing is the cleanest test: on current growth and current burn, does the company reach profitability before the money runs out? If yes, it is default alive and a raise is optional. If no, the raise is existential — and the difference should be known precisely, not felt.
Extending Runway
In order of speed: reduce discretionary spend, renegotiate contracts and payment terms, raise prices, slow hiring, then reduce headcount. The last is the slowest to take effect, because severance and notice mean the saving arrives months after the decision.
Every Metric From These Inputs
150 customers at $200 with 3% monthly churn and $200 CAC:
| Metric | Value | Formula |
|---|---|---|
| MRR | $30,000 | customers × ARPU |
| ARR | $360,000 | MRR × 12 |
| Annual churn | 30.6% | 1 − (1 − monthly)¹² |
| Average lifetime | 33.3 months | 1 ÷ monthly churn |
| LTV | $6,667 | ARPU ÷ monthly churn |
| LTV : CAC | 33.3:1 | LTV ÷ CAC |
| CAC payback | 1.0 months | CAC ÷ ARPU |
What Good Looks Like
| Metric | Healthy | Concerning |
|---|---|---|
| Monthly churn (SMB) | Under 3% | Above 5% |
| Monthly churn (enterprise) | Under 1% | Above 2% |
| LTV : CAC | 3:1 or better | Below 1:1 |
| CAC payback | Under 12 months | Above 18 |
| Net revenue retention | Above 100% | Below 90% |
The Metric This Set Omits
Net revenue retention — expansion revenue minus churn and contraction, from existing customers only. Above 100% means the business grows without acquiring anyone, which is the single strongest signal in SaaS and the one that most affects valuation. It cannot be derived from the inputs above because it needs upgrade and downgrade data.