What Is Run-Rate Revenue?
Annualized revenue projection based on current performance, used to estimate future revenue by extrapolating a recent period's results.
Run-Rate Revenue Explained
Run-rate revenue takes a recent period's revenue and projects it over a full year. If a company earned $500K in the last month, the run rate is $6M annually. If they earned $1.5M last quarter, the run rate is also $6M.
Run rate is useful for fast-growing companies where historical annual revenue understates current performance. A company that grew from $2M to $5M over the year has $5M in actual revenue but may have a $7M run rate based on Q4 performance.
The metric is commonly used in PE valuations, startup fundraising, and internal planning. Investors use run rate to value high-growth companies at forward multiples rather than trailing multiples. Operators use it to forecast resource needs.
The danger of run rate is that it assumes current performance will continue. Seasonal businesses, one-time contracts, and unsustainable growth rates all make run rate misleading. Always assess whether recent performance is representative of ongoing capability.
Why Run-Rate Revenue Matters
Run rate bridges the gap between where a company has been and where it is going. For PE firms, it determines valuation. A company with $4M trailing revenue but a $6M run rate deserves a different price than one with flat $4M revenue.
How to Calculate Run-Rate Revenue
Annual Run Rate = Recent Period Revenue x (12 / Number of Months in Period)Common Mistakes
- 1
Using a single unusually strong month as the basis for run rate projections
- 2
Ignoring seasonality when calculating run rate from a peak or trough period
- 3
Presenting run rate as actual revenue in investor communications, which can be misleading
Related Terms
EBITDA Add-Back
Expenses added back to earnings before interest, taxes, depreciation, and amortization to reflect the true recurring profitability of a business.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers over a period, including expansions and contracting, excluding new customers.
Same-Store Sales Growth
Revenue growth at existing locations compared to the same period last year, isolating organic growth from growth driven by opening new locations.
How Attainment Helps
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Frequently Asked Questions
When should you use run-rate revenue?
Use run rate when current performance is significantly different from trailing 12-month totals, typically during rapid growth, post-acquisition integration, or after a major product launch. Do not use run rate for stable or seasonal businesses where trailing revenue is more accurate.
How is run rate used in valuations?
PE firms and investors may apply a multiple to run-rate revenue when valuing high-growth companies. For example, a SaaS company with $3M trailing revenue but a $5M run rate might be valued at 5x run rate ($25M) rather than 5x trailing ($15M).
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