Capacity PlanningvsBurn Rate

Capacity planning is the process of determining how much work your team can handle and aligning resources to demand. The core calculation is: Available Capacity = Team Size × Working Hours × Productivity Factor (typically 0.6-0.8 after meetings, admin, and context-switching). A team of 5 engineers working 40h/week at 70% productivity has 140 productive hours/week, not 200. Companies that do capacity planning well ship 35% more features per engineering dollar by eliminating both overwork (burnout → turnover) and underutilization (idle teams → wasted salary).

Burn rate is the speed at which your company spends cash reserves before generating positive cash flow. Gross burn is total monthly spending; net burn is spending minus revenue. A startup with $50K/month expenses and $20K/month revenue has a $30K net burn rate and needs $30K from savings every month to survive. VCs use burn rate to calculate runway and assess financial discipline — a startup burning $200K/month with $10K MRR will be scrutinized much harder than one burning $200K with $150K MRR.

The capacity trap is planning at 100% utilization. Organizations that load teams to 95-100% see throughput DECREASE by 20-30% because there's no buffer for bugs, urgent requests, sick days, or creative thinking. McKinsey's research shows optimal knowledge work utilization is 70-85% — above that, quality drops, bugs increase, and burnout skyrockets. Another trap: headcount-based planning. Adding 1 engineer doesn't add 1 engineer's worth of output — it adds 0.5-0.7 due to onboarding, mentoring overhead, and increased communication costs (Brooks's Law).

The trap is tracking burn rate from your P&L instead of your bank account. Accrual accounting can show $50K net burn while your bank is actually losing $80K/month because of delayed client payments (accounts receivable), prepaid annual subscriptions expiring, and vendor invoices coming due simultaneously. Many founders have been shocked to discover their 'calculated' 12-month runway was actually 6 months when measured by actual cash in the bank.

Calculate your team's true capacity: (Number of ICs × Weekly Hours × Productivity Factor) - Planned meetings - On-call hours = Actual Weekly Capacity. Track velocity (story points or tickets completed) over 4-week rolling average. If actual output is consistently below 70% of theoretical capacity, audit where time goes — most teams lose 30-40% to meetings, Slack, and context-switching. Set a 'capacity budget': 70% planned work, 15% unplanned/bugs, 15% tech debt and improvements.

Calculate both metrics and track them separately: Gross Burn = Total Cash Out per Month. Net Burn = Cash Out − Cash In. Then compute Runway = Cash Balance ÷ Net Burn. Set alerts: if runway drops below 6 months, initiate cost cuts or fundraising immediately. Review burn rate weekly (not monthly) — cash surprises kill more startups than bad products.