Run Rate — Definition and Calculation for Projections

Full definition

The run rate annualizes a monthly or quarterly metric to estimate its value over 12 months. It answers the question: “If our current performance continues, where will we be in 12 months?” »

Run rate ≠ ARR. The run rate is an extrapolation based on a recent period. The ARR is the sum of active subscriptions contracted. For a rapidly growing SaaS, the run rate is generally higher than the ARR.

Calculation formula

From a monthly metric : Run Rate = Last month metric × 12

From a quarterly metric : Run Rate = Last Quarter Metric × 4

Example: MRR at the end of January €85,000 → ARR run rate = €1,020,000.

Why it matters

Quick projections. Quick estimate of ARR or annual turnover without complex model.

Comparisons. “We are at €2M run rate” is understood by all investors.

Growth monitoring. An accelerating run rate curve = exponential growth.

Budgets and forecasts. Basis for rapid forecasts while waiting for more sophisticated models.

Run rate reliability depending on the context

Mature SaaS, stable growth : high reliability — reliable forecasts.

SaaS in hyper-growth : low reliability — underestimates future performance.

Seasonal activity : low reliability — requires seasonal adjustment.

Project in launch phase : very low reliability — avoid for projections.

Limits and pitfalls

False constancy hypothesis. January ≠ February ≠ March. Growth, seasonality and uncertainties make this assumption false.

Growing underestimation. For a SaaS that grows 10%/month, the run rate based on the last month underestimates the actual ARR.

Sensitive to outliers. An exceptional month (big contract) distorts the run rate. Use an average of 3 months.

Does not replace a real forecast. For strategic decisions, use a model with multiple scenarios.

Run rate revenue ≠ run rate expenses. Expenses are increasing faster than income.

FAQ

Run rate vs ARR? The run rate annualizes the last month. The ARR sums current subscriptions. For a growing SaaS, run rate > ARR.

Which period to use? The last month for a quick estimate. An average over 3 months for greater reliability.

Is the run rate reliable for a lift? No. VCs prefer ARR and cohorts.

Can I use the run rate for costs? Yes, with caution. Personnel costs increase in stages (hiring).