{"id":28820,"date":"2022-12-28T13:29:55","date_gmt":"2022-12-28T13:29:55","guid":{"rendered":"https:\/\/www.growthmentor.com\/location\/athens\/run-rate-copy\/"},"modified":"2023-01-18T19:44:56","modified_gmt":"2023-01-18T19:44:56","slug":"run-rate","status":"publish","type":"glossary","link":"https:\/\/www.growthmentor.com\/glossary\/run-rate\/","title":{"rendered":"Run Rate"},"content":{"rendered":"\n

What is the run rate?<\/strong><\/h3>\n\n\n\n

Revenue run rate is a financial performance indicator that estimates your company’s upcoming revenue over a period of time based on previous earnings. It is usually calculated for an entire year, but you can also estimate run rates for shorter or longer periods. <\/p>\n\n\n\n

The longer the time frame is, the more accurate your run rates will be because they are based on more historical data. Short-term run rates might not offer the same insight into company growth since you would be projecting profits based on very little information.<\/p>\n\n\n\n

This economic forecasting tool is essential for predicting long-term growth, especially for SaaS companies<\/strong>. However, accurate run rates are based on the assumption that nothing will change for your company in, let’s say, a year – same churn rates, same customers, same ARPU<\/a>, same company size.<\/p>\n\n\n\n

This approach is unrealistic when considering fluctuations in the political landscape, economy, seasonality, potential company growth, etc. <\/p>\n\n\n\n

When you combine run rates with other company growth metrics<\/strong>, such as sales linearity, next quarter pipelines, etc., you will have a better projection of your company\u2019s evolution. Let’s see how to calculate run rates on an annual basis but also based on other timeframes. <\/p>\n\n\n\n

Related:<\/strong> Growth Metrics Every SaaS Business Should Track<\/a><\/p>\n\n\n\n

How to calculate run rate <\/strong><\/h3>\n\n\n\n

Here is the standard run rate formula<\/strong> you can use to calculate both annual run rates as well as run rates for shorter time frames:<\/p>\n\n\n

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The annual run rate can also be calculated by multiplying the Revenue in one month by the number of months: <\/p>\n\n\n\n

Annual run rate = Revenue in period Y x Number of periods Y in one year<\/p>\n\n\n

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Companies can modify and adapt the formula so that it makes more sense for their business model. As a SaaS business with pay-as-you-go and subscription packages, we estimate the run rate using three months of historical data. <\/p>\n\n\n\n

Similarly to the second formula in the image above, we multiply the last three months of Revenue by four (12 months). This helps us estimate revenue growth more accurately.<\/p>\n\n\n\n

Benefits of calculating run rate<\/strong><\/h3>\n\n\n\n

Why should you know how to calculate run rates and how will this help grow your business<\/strong>? Here are the main benefits:<\/p>\n\n\n\n