<aside> 💡 How to use this template
A startup runway refers to how long a company can operate before running out of money. It’s particularly used by startups to forecast, budget, strategize and seek funds.
This metric gives businesses a clear understanding of how quickly they are losing money, how long they can continue to do so, and whether they need to make adjustments to their operations to increase their cash runway.
To calculate your runway you’ll need to know your company’s burn rate. The burn rate is the pace at which a new company is running through its startup capital ahead of it generating any positive cash flow. This calculation helps business owners understand how long they can continue to operate at this rate before running out of money.
There are two types of burn rates:
The more popular term to use is the net burn rate. To calculate the net burn rate ****you will need to know the monthly expenses of the company and subtract them from the monthly recurring revenue. Now you just need your current cash balance to calculate your runway.
The formula for cash runway is simply:
$$ Runway = Cash Balance / Burn (MonthlyExpenses - Monthly Revenues) $$
As companies grow, calculating expenses and revenue becomes more dynamic and harder to predict. An interactive model of the runway like the example below allows the user to create multiple scenarios and see simultaneously how those changes affect the runway.
This particular model assumes a simple online subscription business with free registration and a single, monthly, paid subscription tier. In a product-led-growth model, there are some key factors that can have a significant effect on the company's monthly recurring revenues (MRR).