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You’ve heard the term “run rate” thrown around like it’s gospel in startup finance. But most founders still treat it like a magic number. Let’s clear the fog.
Run rate is a guess, an educated one, but a guess nonetheless. And if you’re making big bets on the future of your business, you better understand how sharp (or blunt) that guess really is.
Simple math. Big assumptions.
If you want an annual run rate based on your most recent quarter:
Quarterly revenue × 4
Made $150K in Q1? Congrats. Your run rate says you’re a $600K company.
Want to use monthly data?
Monthly revenue × 12
Pulled in $40K last month? Your run rate is $480K.
Pro Tip: Always say where the data came from (month, quarter) when you share a run rate. Context turns fluff into fact.
There are moments when run rate shines like a flashlight in a cave. Here’s when:
Maybe you’ve only been live for 3 months. You raised a round. You want to show investors or advisors what this growth could look like if it keeps going. Run rate helps paint the picture.
But here’s the truth: They’ll squint hard at that number. If it’s Q4 and you’re in ecommerce, they know holiday spikes are fool’s gold.
If your first two quarters were loss-making, but this quarter you’re profitable—boom—you use run rate to show the new trajectory. Not to hide your past. To highlight your now.
You launched a Shopify product that’s doing $10K/month after two months? Projecting a $120K annual run rate gives you a sense of demand—but don’t take that number to the bank yet.
Want to decide if you can afford that engineer? Or prepping to talk to investors? Run rate is a quick gut-check. It helps you forecast burn, potential revenue, and when you’ll need more cash.
Selling your company? Buyers will care about LTM (last twelve months) and current run rate. If your revenue just jumped, run rate helps you argue for a higher multiple.
Run rate is seductive. But it lies.
Run rate doesn’t care about seasonality, one-off spikes, churn, CAC, or macro headwinds. It’s like using last night’s poker hand to predict next year’s earnings.
In ecommerce: Run rate from Q1 = a bad predictor of Q4.
In SaaS: Run rate without factoring in churn = a fantasy novel.
If your business has seasonality, spikes, or churn risk—pair run rate with scenario modeling. Use tools (like Futureproof) that forecast with nuance, not just multiplication.
It’s quick. It’s dirty. It’s useful, until it’s not.
Use run rate to start the conversation. Don’t let it end the analysis.
If you’re making hiring, funding, or scaling decisions based on run rate alone, you’re building on sand.
Build on data. Build on reality. Build on patterns, not projections.
