"What’s your current burn rate and runway?
This is one of the most common questions investors ask and one of the most common places founders freeze. The maths isn’t hard, but nobody ever sat down and explained what these words mean which is why founders struggle.
Hi, Candice here, FSC’s finance chick. If you missed the first two parts of this series, it’s worth backtracking to get up to speed because today we’re getting your burn rate and runway numbers!
The 4 words that make founders freeze (decoded)
Term | What it means | How to calculate it |
|---|---|---|
Burn rate | How much cash you're spending each month after taking into account the revenue coming in | Total monthly costs less monthly revenue |
Runway | How many months you can survive at your current burn rate | Current cash divided by burn rate |
CAC (Cost per Acquisition) | How much it costs to acquire one paying customer | Total sales & marketing spend divided by new customers gained |
LTV (Lifetime Value of Customer) | How much money a customer is expected to bring into your business over the entire time they keep buying from you | Average revenue per customer multiplied by how long they typically stay |
Where founders get caught out
Investors want the numbers but they need to know that they’re realistic. Two red flags that come up constantly:
A CAC that halves for no clear reason: If you're going from a $120 CAC to $50 in 6 months how did this happen? Unless you can explain it clearly it’s probably not efficient or realistic.
A churn assumption of zero: At some point, customers will leave. Get clear on your definition of churn and use a conservative assumption rather than an overly optimistic one.
My optimistic vs. realistic example
Ecommerce founders: there are two types of CAC; fully loaded CAC (includes everything from ad spend, discounts, and returns, not just the ad click) and unloaded CAC - digital paid spend only. Decide which one you use to monitor performance.
SaaS founders: your LTV lives and dies on your churn assumption. A slightly-too-optimistic churn number inflates every other projection downstream of it.
Calculate your own in the next 10 minutes
Pull your total cash spend and revenue for last month → that's your burn rate
Divide your current cash balance by that number → that's your runway (in months)
Write both numbers down somewhere you can find them in 5 seconds. That's the whole exercise! The goal is instant recall vs a perfect model.
💎 Today's gem: you can now answer (on the spot) the exact question that makes most founders freeze: “What’s your burn rate and your run rate?” 👏
💌 Before next week.. I want to hear from you
Reply to this email with: What's the numbers or investor question that’s keeping you up at night? Hit reply and tell me. I'm answering real questions from this list in the next issue and no question is too basic, that's kind of the whole point of this newsletter :)
- Candice, FSC’s Finance Chick
Know Your Numbers is a weekly series from Founded To Be Counted, helping female founders build real confidence with their business finances.
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