What's a "normal" burn rate for a startup? ⤵ Here are benchmarks from 700+ SaaS companies. A few observations: 1. There is no optimal burn rate. - What's healthy for one business might lead another startup to run out of cash. - Consider the level of cash on hand & confidence that any investments will leave the business better off. 2. What's "normal" today looks wildly different from 2021/2022. - Median burn rates are down materially year-over-year. - The biggest decreases are among SaaS companies with $5M+ ARR & especially those with $20M+ ARR. - The median monthly burn rate for a $20-$50M ARR biz fell from $1.5M (2022) to only ~$100-150k (2023). 3. "Normal" depends on your size and growth rate. - Higher growth SaaS companies with $20M+ ARR are still burning an average of ~$1M per month. Only ~5% of these companies are breakeven or profitable. - On the flip side, a lower growth SaaS company with $1-5M ARR is now only burning ~$50k per month. About ~25% of these companies are breakeven or profitable. 4. Be prepared for potential layoffs if burn starts to diverge from growth. According to layoffs.fyi, tech layoffs increased again in January to ~31,000 people. The silver lining is that this is down by almost 70% from the peak in January 2023 (~90,000 people). Let me know what you think: is this level of burn "healthy" or are we going to see even more cuts in 2024? -- 🎁 PS - Tap "view my blog" below my name for more data & stories about growing a SaaS startup. #saas #finance #startupfunding
Fascinating - especially the huge range for low-growth >$20m
Hayk H.
3mo
Gréât insights ! Do thèse include also b2b SaaS and also from Southeast Asia ?
Chris Aulbach
3mo
The “right amount” of burn is certainly a function of the venture, its near-term needs, growth rate, market dynamics, etc. These benchmarks provide a good basis for comparison...insightful as always, thank you! Layoffs and “right sizing” (or at a min hiring delays) appears commonplace in ’24, especially as the private SaaS market deals with valuation adjustments from the ’21-’22 peak plus the reality of having to extend runways by shifting focus to “efficiency” (vs the ZIRP growth-at-any-cost days). Add in the alluring promise of AI and the likely reality that raising more $$ whilst avoiding a ‘down round’ is challenging at best...whola we get a bit of a SaaS reset. Achieving breakthrough scale (e.g. + cash flow or profitability within the next 12-18mo) is incredibly difficult, and often expensive, especially in a risk-off “cost optimization” environment where buyers can squeeze incumbents vs opt for newer entrants. Differentiation is paramount, but that can create a catch-22. When aggressive high-growth forecasts don’t materialize, resets are often an inevitable and painful result. Hopefully with large public SaaS surging again and growing EPS, that translates into benefits for private SaaS markets as well.
Rick Eldee
3mo
Kyle Poyar imo we will see more cuts in 2024. You're already seeing companies doing their 3rd round of layoffs to start the year and as more companies approach their zero-cash date this year, there will be another round of cuts for sale readiness as startups who couldn't build a business to scale will be forced to sell or extend their life for a few more months. If you have cash burn in your sample, did you also collect cash? You can calculate cash runway for the companies and answer your own question if the burn is "healthy." If you are +12 months of cash runway, you're good. Ideally +18 - 24 months runway some folks at Bessemer Venture Partners told me are ideal North Star targets to aspire to if you want to get funded again.
Ton Dobbe 🔆
3mo
To me it's not so much how much you burn as a SaaS business - the question is, if you really have to, will it be possible to get to profitability fast (< than a quarter), without killing the company (because you've had to let go of too many people and customer / employee churn will spike as a consequence of that). That's a good signal you're building a company that's got here to stay
Ryan Johns
3mo
Additional layoffs are inevitable unless companies start to understand the difference between speed and efficiency. They are not the same and the metrics to measure are not the same. Efficiency ratios are one of the core metrics that directly correlate to profitability.
Kai Uhlig
3mo
A healthy net burn rate is a) one that in relation to Net New ARR is below 2-3 for companies below 10M ARR (net new arr/net burn) b) when this ratio is showing a trend to get smaller and smaller - X<0 = profitable. Does not apply for deep tech and hardware startups.
Mikita Martynaū
3mo
Great data indeed! It really shines a light on how startups are becoming more strategic about their spending. Heading further into 2024, leveraging these insights for smart spending could definitely give companies a competitive edge. Emerging tools like skarbe.com can be game-changers, helping businesses optimize operational costs while maximizing efficiency and insights from their data.
Peter Caputa
2mo
Happy to be an outlier here at $8M ARR with a $0 burn rate in q4. There are smarter ways to grow now.
Operating Partner @ OpenView | Growth Unhinged 🚀
3moHere's a snapshot of the layoffs dot fyi data. There was a clear spike in Jan, but the numbers are down significantly YoY. My caveat is that recent layoffs appear to be quieter than ones from a year ago so it's possible this tracker is missing a sizable portion of what's going on