Burn Rate

Burn rate is the pace at which a contractor is spending money — typically measured as cash outflow per month or per week. It answers a simple question: at the current rate of spending, how long does the cash last?

In construction, burn rate has two related meanings that are worth keeping distinct.

Company-level burn rate

At the company level, burn rate is total cash out the door per period — payroll, materials, equipment costs, overhead, subcontractor payments. When cash inflows from billings and collections slow down, burn rate determines the runway: how many months of operating expenses the current cash position can sustain.

A company burning $400K/month with $800K in the bank has a two-month runway if nothing comes in. That's not a comfortable position on a job with a 60-day pay cycle.

This is the version of burn rate most familiar from startup finance, and it's directly applicable to any contractor who's grown faster than their working capital — or who's hit a slow-pay owner, a disputed draw, or a retainage pile-up.

Job-level burn rate

On individual projects, burn rate refers to how quickly the contract value is being consumed — costs incurred as a percentage of total contract value, or simply dollars spent per week on a given job.

Job-level burn rate matters for two reasons:

• Cash forecasting — a job burning faster than its billing schedule will go underbilled. The contractor is out-of-pocket until the next draw catches up.
• Schedule and budget health — a job burning significantly faster or slower than planned is signaling a problem. Faster usually means scope is running ahead, costs are uncontrolled, or something was missed in estimating. Slower may mean the job is stalled.

Burn rate and the WIP report

The WIP report is where job-level burn rate becomes visible at scale. Cost-to-date as a percentage of revised estimated cost — the percent-complete figure — should track proportionally against billings. When burn rate outpaces billing rate across multiple jobs simultaneously, the WIP shows a widening underbilled position and working capital starts compressing.

Watching burn rate at the job level before it aggregates into a WIP problem is how contractors stay ahead of it.

What burn rate doesn't tell you

Burn rate is a rate, not a verdict. High burn on a job that's billing ahead of costs and collecting on time is fine — the job is moving. High burn on a job that's underbilled, slow to collect, and heading toward a change order dispute is a different situation entirely.

Context matters: burn rate is most useful when read alongside billing pace, collection velocity, and gross profit trend — not in isolation.