Run rate is a financial projection that estimates a company’s future revenue (or other metrics) based on current performance. It’s typically calculated by taking revenue from a recent period, like a month or a quarter, and extrapolating it over a longer timeframe, usually a full year.
While run rate isn’t a forecast (which includes strategic changes, seasonality, or planned growth), it gives a quick snapshot of the business’s current trajectory. It’s often used as a shorthand for fast-growing companies to express how large the business would be if recent performance continued.
How to Calculate Run Rate
The basic formula is simple:
Run Rate = Revenue from a period × Number of periods in a year
Examples:
- If your company generated $100,000 in revenue in April:
Annual Run Rate = $100,000 × 12 = $1.2M
- If you made $600,000 in Q1:
Annual Run Rate = $600,000 × 4 = $2.4M
This assumes that monthly or quarterly performance remains consistent for the rest of the year.
When Run Rate is Useful
- Early-stage startups that don’t yet have a full year of revenue can use run rate to demonstrate traction.
- Subscription or recurring revenue businesses often highlight the monthly recurring revenue (MRR) run rate to show projected annual revenue (ARR).
- Growth-stage companies may use run rate to signal momentum during fundraising or board updates.
Where It Can Be Misleading
While run rate is helpful for quick comparisons and goal-setting, it’s not always accurate. Here’s why:
- Seasonality: Retailers or event-driven businesses may have big months that aren’t repeatable. A December run rate could vastly overstate the full-year picture.
- One-Time Spikes: A sudden, large deal or promotional event can distort the run rate upward.
- Declining Revenue: If performance is trending, a run rate based on older, stronger months can overestimate the future.
- Rapid Scaling: A run rate may underestimate future revenue for fast-growing companies, since it doesn’t account for accelerating growth.
Because of this, run rate should be presented alongside historical context or a proper forecast to avoid misinterpretation.
Run Rate vs. Forecast
It’s easy to confuse the two, but they’re fundamentally different:
| Run Rate | Forecast |
| Based on recent actuals | Includes planned changes or strategy |
| Simple, static calculation | Dynamic, based on multiple variables |
| Assumes consistent performance | Accounts for growth, seasonality, shifts |
| Good for snapshot | Better for strategic planning |
Run Rate in Fundraising
Investors often look at a run rate for a baseline sense of momentum. But they’ll always ask:
- Is this revenue recurring or one-time?
- Does a specific event inflate this figure?
- What’s your burn rate relative to this revenue?
If your run rate looks excellent but isn’t sustainable, it can hurt more than help. If it’s stable and backed by repeatable business, it becomes a credible signal of growth.
Run Rate Metrics Beyond Revenue
While most people think of run rate in terms of revenue, the concept applies to other business metrics too:
- Gross Profit Run Rate
- User Growth Run Rate
- Ad Spend or CAC Run Rate
- Headcount Run Rate (for hiring planning)
It’s simply a way to annualize current trends, but context is everything.
Using run rate in your pitch or internal reports, but unsure if your financial data supports your story? Durity can help. We clean up your books, clarify recurring vs. one-time revenue, and help you present a run rate investors can trust, grounded in solid numbers, not just assumptions.
