Industry Advice
Revenue
,
Professional Services 101

How to calculate burn rate

By
How to calculate burn rate

To keep your projects profitable, it's important to measure burn, a key financial metric for professional services.

In the simplest terms, burn rate is the pace at which you are spending your available capital (or budget). For example, if your project has a budget of $300,000 and a burn rate of $50,000 per month, it will only have a cash runway of six months. To effectively track this, you need to calculate gross burn, which involves understanding the amount of cash your company is spending on operating expenses each month.

Tracking your burn and knowing its direction helps your company make changes to reduce the chance of running out of cash. Monitoring your cash balance and maintaining operational efficiency is critical to ensuring that your company’s cash reserves last as long as possible, especially in early-stage companies where every dollar counts.

How to interpret your burn rate

Rising burn rate & potential setbacks

A higher burn rate can serve as a warning sign that the project may be encountering difficulties. Higher costs can be caused by project scope expansion, resource inefficiency, or unexpected obstacles leading to negative cash flow. If your company's cash reserves are dwindling, it becomes essential to implement burn rate measures to realign expenses with the budget.

Recognizing a high burn rate should prompt project managers to delve into the root causes, reevaluate project priorities, and implement corrective measures to realign expenses with the budget.

Falling burn rate & project progress

Conversely, a declining burn rate can be a positive indicator of project advancement. If the project is spending less than initially forecasted, it suggests efficient utilization of resources and effective cost management. This situation may arise when tasks are completed ahead of schedule or when the team successfully manages resources without exceeding the budget. This improvement in operational efficiency can help preserve your company’s cash balance and extend the months cash runway.

However, it is imperative to ensure that the project's quality and scope remain intact, and that the pursuit of reducing the burn rate does not compromise the overall success of the project.

Burn on track & steady progress

Maintaining a positive cash flow that aligns with projections signifies a well-managed and balanced approach to resource utilization. In addition to this, a project progressing according to plan reflects effective planning, execution, and adaptability to challenges. Meeting milestones and staying within the calculated gross burn rate not only instills confidence in stakeholders but also underscores the project team's ability to navigate complexities while adhering to a sound financial strategy.

Many projects struggle to stay on budget, so if your project fits best in this category, that's a testament to your Project Manager's work and their ability to manage the company's cash reserves effectively.

Our simple burn rate formula:

Projected Effort + Projected Expenses = Projected Burn

  • Projected Effort:
  • This includes the total time worked, as captured by timesheet data, plus the value of the remaining resourcing required to complete the project.
  • Projected Expenses:
  • Typically, project managers can manage the operating expenses that impact the project’s budget. By selecting which expenses and applicable sales tax are billed to the client, they can ensure that only the necessary costs contribute to the project’s overall burn rate.

What burn reports do I need?

At Projectworks, we recognize the importance of understanding and tracking a project’s burn rate, and we bring it front and center by giving you the flexibility to view your cash burn rate in many forms.

Gross burn rate

From a Project’s Dashboard, you can easily view the project burn for a project overall. This is a valuable figure to include in reporting to upper management.

Monthly burn rate

You can also view a project’s calculated burn rate for the month, ensuring your project managers are keeping their finger on this vital pulse.

Forecasting dashboard

To keep your exec team happy, we’ve included the ability to keep an eye on a project’s monthly burn from the forecasting screen of all projects.

free trial

Join our community of experts

Subscribe to our newsletter and receive consulting insights, industry news, and actionable tips delivered straight to your inbox.

By subscribing you agree with our Privacy Policy.
Enjoying this article?
Share it with the world!

Related Articles

Engineering services today: trends, challenges, and opportunities
Industry Advice
Engineering
,
Benchmarks

Engineering services today: trends, challenges, and opportunities

Explore the latest trends and insights shaping the future of engineering services in 2025, from economic challenges to tech-driven growth opportunities.

On time, every time: How to stop late timesheets with timesheet reminders
Industry Advice
Time Tracking
,
Product Update

On time, every time: How to stop late timesheets with timesheet reminders

Did you know 22.3% of global time entries are submitted after the week they’re due? Discover an easy way to avoid this problem at your firm.

The 5 most common project management methodologies: pros & cons
Industry Advice
Project Management
,
Professional Services 101

The 5 most common project management methodologies: pros & cons

Explore the top project management methodologies and find the best fit for your business.