What is run-rate?
Run-rate is the annualised projection of current performance — typically used to translate a short-period figure (a month, a quarter) into a forward-looking annual indicator. The most common variant is monthly recurring revenue multiplied by 12 to produce an “ARR run-rate”. Run-rate is a convenience metric — useful for snapshots, dangerous for valuation.
Formulas
Generic run-rate from a period:
Run-Rate = Period Figure × Periods per Year
Examples:
- Monthly revenue × 12 = revenue run-rate.
- Quarter-end recurring revenue × 4 = ARR run-rate.
- Last-month net new ARR × 12 = annualised growth run-rate.
Run-rate vs. ARR
- ARR: the annualised value of the active subscription book at a point in time — based on contracts, not extrapolation.
- Revenue run-rate: last period’s revenue projected forward — includes one-time items, churn timing, seasonal noise.
- The two can differ materially when the business has high one-time revenue, lumpy enterprise deals or strong seasonality.
When run-rate is useful
- Quick snapshot of scale for board updates (“we’re at $5M run-rate as of last month”).
- Setting forecast goals — what monthly performance is needed to hit a target annual rate.
- Comparing across periods of unequal length.
Where it misleads
- One-time items: a big enterprise launch fee inflates the period and produces an inflated run-rate.
- Seasonality: a peak-month run-rate over-states; a trough-month run-rate under-states.
- Cohort dynamics: recent cohorts may churn at different rates than projected; run-rate assumes the present continues.
- Investor optics: “run-rate revenue” in a pitch deck is often higher than ARR — investors normalise it back during DD.
Do: use ARR in valuation conversations and DD; reserve run-rate for internal snapshots and forecast-setting.
Don’t: publish a peak-month or one-time-inflated run-rate as a headline metric — sophisticated investors discount it and trust drops.