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Burn Rate

Definition

The rate at which a company spends its cash reserves, typically expressed as a monthly figure. Gross burn rate is total monthly spending; net burn rate subtracts revenue. PMs at startups need to understand burn rate because it directly constrains the time available to find product-market fit and informs prioritization urgency.

Why It Matters for Product Managers

Understanding burn rate helps product managers make better decisions about what to build, how to measure success, and where to focus limited resources. Teams that master this concept ship more effectively and maintain stronger alignment between business goals and user needs.

How It Works in Practice

Product teams measure and act on this metric by first establishing a baseline, then setting targets tied to product or business objectives. The typical workflow involves:

  • Define — Agree on the exact calculation and data source so every team member reads the same number the same way.
  • Instrument — Ensure the product tracks the events and attributes needed to compute the metric accurately.
  • Dashboard — Surface the metric in a shared dashboard that the team reviews at a regular cadence (daily, weekly, or per sprint).
  • Act — When the metric moves outside its expected range, investigate root causes and form hypotheses before jumping to solutions.

    • By embedding burn rate into regular team rituals, PMs keep the conversation grounded in evidence and catch problems before they compound.

    Common Pitfalls

  • Treating the metric as a vanity number rather than connecting it to actionable product decisions.
  • Measuring in isolation without pairing it with complementary leading or lagging indicators.
  • Optimizing the metric at the expense of overall user experience or long-term business health.

    • Related Terms

    ARR / MRR (Annual Recurring Revenue / Monthly Recurring Revenue)

    Frequently Asked Questions

    What is burn rate in product management?+
    The rate at which a company spends its cash reserves, typically expressed as a monthly figure. Product managers use this concept to make more informed decisions and deliver better outcomes for users and the business.
    How do you measure burn rate?+
    To measure burn rate, define the exact calculation and data source, instrument your product to capture the necessary events, and surface the metric in a shared dashboard. Review it at a regular cadence and investigate when it moves outside expected ranges.
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