Burn Rate

Burn rate measures how quickly your agency spends money—typically expressed as monthly cash outflow—and is one of the most important financial metrics for understanding your business's financial runway. It answers the fundamental question: "If no new revenue came in, how long could we keep operating?" For agencies, understanding burn rate is critical for financial planning, especially during slower periods, when investing in growth, or when managing the feast-and-famine cycles common in project-based work. Burn rate is typically calculated as total monthly operating expenses: payroll, rent, software subscriptions, marketing, and all other fixed and variable costs. Some agencies calculate "gross burn" (total cash spent per month) and "net burn" (cash spent minus cash received—essentially the change in cash position). Net burn is often more meaningful because it accounts for ongoing revenue. For example, if you spend $50,000 per month but bring in $45,000, your net burn is $5,000—meaning you're depleting reserves by $5,000 monthly. Runway is directly derived from burn rate: divide your current cash reserves by your monthly burn rate to get how many months you can operate without new revenue. If you have $100,000 in cash and burn $25,000 per month, your runway is 4 months. This number helps you make critical decisions about hiring, spending, and when you need to prioritize revenue generation. Agencies should track burn rate because it provides early warning of financial stress. A rising burn rate (increasing expenses) or declining revenue (increasing net burn) signals that corrective action is needed. Many agencies experience seasonal variations—higher burn during slow winter months, lower net burn during busy quarters. Understanding these patterns helps with cash management and planning. Common mistakes include not tracking burn rate at all (flying blind financially), conflating profit with cash flow (you can be profitable on paper but have negative cash flow), not planning for seasonal variations (getting caught without reserves during slow periods), and not acting when burn rate trends are negative. The most successful agencies monitor burn rate monthly, maintain adequate cash reserves (many target 3-6 months of runway), and take proactive steps when burn rate or runway deteriorates.