What is run rate in business?

Run rate is revenue from a recent period scaled up to a full year. If you earned $50,000 last month, your monthly run rate is $600,000. It assumes the period you picked repeats for the rest of the year.

How do you calculate annualized run rate?

Multiply revenue for the period by 12 divided by the number of months in it. Last month × 12, or last quarter × 4. A trailing three-month average × 4 is often more reliable than a single month.

Is run rate the same as ARR?

Not in modern SaaS usage. Run rate annualizes all revenue, including one-off fees and usage charges. ARR annualizes only recurring subscription revenue. For a pure subscription business the two are close; with lots of one-off or usage revenue, run rate will be noticeably higher.

Why can run rate be misleading?

Because it multiplies whatever happened in one period by twelve. Seasonal peaks, one-time deals and annual prepayments counted as cash all inflate it, and a fast-shrinking business will rarely reach it.

Should a startup report run rate or ARR to investors?

A subscription business should lead with ARR, because it's the standard for valuation and comparison. Run rate makes sense for usage-based or hybrid models - just label it clearly as run rate, and say what it includes.

What is the difference between run rate and revenue?

Revenue is what you actually earned in a period. Run rate is a projection that takes that revenue and annualizes it. Last year's revenue is a fact; this year's run rate is an estimate.

What Is Run Rate? Formula, Examples & Run Rate vs ARR

Run rate takes revenue from a recent period and annualizes it - last month × 12 or last quarter × 4. Unlike ARR it includes every kind of revenue, one-off fees and usage charges too, so it drifts above ARR the more non-recurring revenue you have.

Run rate is a quick way to turn a short period of revenue into a yearly figure. Take what you earned last month or last quarter, scale it up to twelve months, and you have an estimate of what the year would look like if nothing changed.

It's useful, fast and easy to explain - which is also why it's easy to misuse. This page covers the formula, a worked example, the situations where run rate gives you the wrong answer, and how it differs from ARR.

What Is Run Rate?

Revenue run rate (often called annualized run rate) is the revenue from a recent period, extrapolated to a full year.

Run Rate = Revenue in period × (12 ÷ Months in period)

So for the common cases:

Monthly run rate  = Last month's revenue × 12
Quarterly run rate = Last quarter's revenue × 4

The key word is revenue. Run rate takes everything that came in during the period - subscriptions, usage charges, one-off setup fees, services, a big one-time deal - and annualizes all of it. It makes no distinction between money that will repeat and money that won't.

A Worked Example

A SaaS business had the following revenue in October:

Revenue type	October
Subscriptions (MRR)	$40,000
Usage overages	$6,000
One-off onboarding fees	$4,000
Total revenue	$50,000

Run Rate = $50,000 × 12 = $600,000
ARR = $40,000 × 12 = $480,000

Both numbers are "annualized", but they answer different questions. The $600,000 run rate says: if every month looked like October, the year would bring in $600,000. The $480,000 ARR says: this is the yearly value of the subscriptions that are actually committed and recurring.

The $120,000 gap is the onboarding fees and overages. The overages might well repeat. The onboarding fees almost certainly won't, at least not from the same customers.

Run Rate vs ARR

The two are easy to confuse because older usage sometimes treated "ARR" and "annualized run rate" as the same thing. In SaaS today they usually mean different numbers.

	Run rate	ARR
What it annualizes	All revenue in a period	Recurring subscription revenue only
Includes one-off fees and services	Yes	No
Includes usage or overage revenue	Yes	Usually not, unless contracted
Based on	Money earned in a past period	Active subscriptions at a point in time
Best for	Businesses with mixed or usage-based revenue, quick estimates	Subscription businesses, investor reporting, valuation

For a pure subscription business with no extras, run rate and ARR come out almost identical. The more one-off, usage or seasonal revenue you have, the further apart they drift - and the more it matters which one you quote.

If you report run rate to investors, call it run rate. Calling a number that includes setup fees "ARR" is a common way to lose credibility in due diligence.

When Run Rate Misleads

Seasonality. Annualizing your best month overstates the year; annualizing your worst understates it. A tool for accountants that books a surge every tax season, or an ecommerce add-on that peaks in November, will produce a very different run rate depending on which month you pick.

One-off deals. A single large implementation fee or a one-time enterprise purchase lands in one month and inflates that month's run rate by twelve times its value. A $10,000 one-off fee adds $120,000 to a monthly run rate.

Annual prepayments counted as revenue. If you annualize cash collected rather than recognized revenue, a month with several annual renewals looks enormous. A customer paying $12,000 upfront for a year is $1,000 a month of revenue, not $12,000.

Fast growth or fast decline. Run rate looks backwards. A company growing 10% a month will beat last month's run rate comfortably; one losing customers won't reach it.

Churn that hasn't shown up yet. Customers who have already cancelled but are still inside a paid period count toward this month's revenue and next year's run rate, even though they won't be there.

Why Run Rate Matters

It's the right measure for revenue that isn't purely subscription. Usage-based and hybrid businesses can't describe themselves with ARR alone, because much of their revenue isn't a fixed subscription. Run rate gives them an honest annualized figure.

It's quick. For a young company with a few months of data, run rate is a reasonable shorthand for "how big are we now" while the numbers are still small.

It's useful for planning. Hiring, hosting and budget decisions often start from "what would a year at today's pace look like?"

Run Rate Benchmarks

Run rate is a description of size, not a ratio, so there's no "good" run rate on its own. What matters is how it relates to other numbers:

Run rate close to ARR (within roughly 10%) usually means revenue is overwhelmingly recurring and predictable.
Run rate well above ARR means a large share of revenue is one-off or usage-based. That's fine, but it needs explaining, and that share deserves its own trend line.
Run rate growth should be judged with the same rough ranges as MRR growth rate - but compare quarter to quarter, not just month to month, to wash out lumpy revenue.

These are rough rules of thumb, not published standards.

How to Make Run Rate More Reliable

Use a longer base period. Quarterly revenue × 4 is steadier than monthly × 12. A trailing three-month average smooths spikes further.

Strip out one-offs. Report a "recurring run rate" alongside the total so readers can see how much is repeatable.

Use recognized revenue, not cash. Spread annual prepayments across the months they cover before annualizing.

Compare like with like. Don't put a December run rate next to a June one for a seasonal business without saying so.

How to Track Run Rate

Chartsy pulls revenue, refunds and MRR from Stripe, Paddle, Polar, Lemon Squeezy, Creem or Freemius and shows them side by side. Net revenue by month gives you the base for a run rate, and MRR gives you ARR, so you can see both and the gap between them - which is the share of revenue that isn't recurring. Chartsy excludes one-off charges from MRR and divides annual plans down to a monthly value, so ARR isn't distorted by renewal months.

Connect Stripe and see your revenue and ARR together →