What Is Run Rate? Formula, Examples & Free Calculator (2026)

You had a great month. Revenue hit $40,000, and someone on the team says: "That's a $480K run rate." It sounds great in a deck. Then an investor asks the question every investor asks: "Based on what?" Run rate is the fastest way to turn one month into a yearly number. It's also the easiest number to get wrong. Below we explain what run rate means, how to calculate it and how it differs from ARR. We also cover when it misleads and how to show it to investors. You get a free run rate calculator in Excel, too.

Run rate is an estimate of a full year's revenue, based on a recent shorter period. You take what you earned in that period and assume the pace holds: last month × 12, or last quarter × 4. People also call it revenue run rate or annual run rate. It's a snapshot, not a forecast. Seasonality, one-off deals and churn can all make it wrong.

What does run rate mean?

In business, run rate means how much a company would earn in a year if it kept its current pace. Founders use it to show their size before they have a full year of numbers. Finance teams use it for budgets and sales targets. Investors use it as a quick first read, then check what's behind it.

Say your startup billed $20,000 last month. Multiply by 12 and your run rate is $240,000. That's all there is to it. No model, no assumptions beyond "next year looks like last month". That's why early-stage teams like it. It shows scale when there isn't much history yet.

Big companies use run rate too. Microsoft's AI business passed an annual revenue run rate of $37 billion in the quarter to March 2026 (Microsoft). In July 2026, Amazon put AWS at a $169 billion annualized revenue run rate (Amazon). Both are snapshots of recent results, not promises about next year.

You'll hear it called a few names: run rate, revenue run rate, annual run rate or annualized run rate. They all mean the same yearly figure. "Annualized" just means scaled up to a year. Be careful with "ARR", though. Sometimes it means annual run rate, but usually it means annual recurring revenue. We untangle the two below.

Run rate isn't only for revenue, either. You can scale costs, sales bookings, profit or savings up to a year the same way. Each one gets its own section below.

Run rate calculator (free Excel template)

Our free run rate calculator is an Excel file. Type in up to 12 months of revenue, split into recurring and one-off. It works out your run rate five ways: by month, quarter, week, day and recurring revenue only. It puts each one next to what actually came in, and it flags a hero month.

Here's what the calculator works out, line by line. The example is a fictional software startup. It bills $30,000 a month in subscriptions, plus a one-off $10,000 setup fee in September.

How do you calculate run rate?

The run rate formula is revenue in a period × the number of those periods in a year. Use monthly revenue × 12, quarterly revenue × 4 or weekly revenue × 52. For a window that isn't a full month, divide revenue by the days in it and multiply by 365. Whichever you start from, the answer is a yearly figure.

Let's work through it with our example startup. It sells software by subscription and sometimes charges a one-off setup fee. Here's its last year, quarter by quarter:

Monthly run rate

Take last month and multiply by 12. September brought in $40,000, so the monthly run rate is $480,000. This is the version most founders quote. It's also the most fragile, because one month rarely looks like a whole year.

Quarterly run rate

Take the last three months and multiply by 4. July to September brought in $97,000, so the quarterly run rate is $388,000. A quarter smooths out one lumpy month. B2B companies often prefer it. Invoices land late, and big customers pay in batches.

Weekly and daily run rate

Weekly run rate is last week's revenue × 52. It suits businesses that track sales by the week, like online shops. Daily run rate is revenue ÷ days × 365. Use it when your window doesn't match a calendar month.

Say it's 15 October and you've billed $15,000 so far this month. That's $1,000 a day, or a $365,000 run rate. The same method works for the days since a price change or a product launch.

So which run rate is right? Our example startup now has four, and none of them matches the $328,000 that came in over the last year. Each one is honest arithmetic. What matters is that you say which period you used, and show what really came in next to it.

What's the difference between run rate, ARR and MRR?

Run rate scales all your revenue up to a year, recurring and one-off. ARR, annual recurring revenue, counts only subscription or contract revenue that repeats, usually MRR × 12. MRR is that recurring revenue for one month. The catch: some people use ARR to mean annual run rate. If it isn't recurring, don't call it ARR.

Here's the rule we give founders in model reviews. If it's recurring, call it ARR. If it's everything, call it run rate. Mixing the two in a SaaS deck reads as sloppy at best. Our guide to key SaaS metrics covers ARR, MRR and the rest. And net revenue retention is the number investors put next to ARR.

The two meanings get mixed up a lot, especially at AI startups. In May 2026, TechCrunch reported founders quoting "ARR" built from one quarter, month or week of revenue (TechCrunch). Some go as far as a single day. Others count signed contracts that haven't gone live yet. Investors know these tricks. Label yours before they ask.

What is sales run rate?

Sales run rate is the same formula applied to sales instead of revenue. Take new bookings last month × 12, or last week × 52. It tells a sales team what a year looks like at today's pace. But bookings aren't revenue. Sign a $120,000 annual contract today and bookings rise by the full amount. Revenue this month rises by just $10,000.

Say your team signs $200,000 of new annual contracts every month. That's a $2.4 million sales run rate. It's a fair capacity check: if the team keeps closing at this pace, what does the year look like? But bookings only turn into revenue as you deliver. Under IFRS 15 (ASC 606 in the US), you record revenue as the customer gets the product or service (IFRS Foundation). Signing the contract isn't enough.

So keep the two apart. In a pitch deck, sales run rate belongs on the go-to-market slide. Revenue run rate belongs in the financials. When an investor asks for your run rate, give revenue unless they ask about bookings.

What is run rate EBITDA?

Run rate EBITDA is recent operating profit scaled up to a year, usually last quarter's EBITDA × 4. Buyers and lenders compare it with LTM EBITDA, the actual last twelve months. Sellers prefer the run rate when the business has just improved, after a price rise or cost cuts, for example. Expect buyers to test every adjustment behind it.

Run rate EBITDA comes up mostly in M&A and private equity deals. Say a company made $1.2 million of EBITDA last quarter. Its run rate EBITDA is $4.8 million. Its last twelve months might show only $3.5 million. The seller will argue the business is worth more than its past suggests. The buyer will ask why.

The fight is usually over adjustments, the add-backs that turn EBITDA into adjusted EBITDA. Buyers check each one in their quality-of-earnings work. Regulators are wary of them too. The SEC warns that an adjusted measure that leaves out normal, recurring cash operating costs can be misleading (SEC). Our guide to EBITDA vs revenue explains when each one matters.

Run-rate savings and synergies

Run-rate savings use the same idea for costs. Say you cut $50,000 a month of spending. That's $600,000 of run-rate savings, even if only part of it shows in this year's accounts. In M&A, buyers talk about run-rate synergies: the yearly savings they expect once two companies are fully combined. Gildan and HanesBrands agreed to combine in 2025. They expected at least $200 million of annual run-rate cost synergies within three years (Gildan and HanesBrands). Only about $50 million of it was expected in the first year. Getting there was set to cost about $200 million in one-off costs, which the run-rate figure leaves out.

When does run rate mislead?

Run rate works when your recent months look like your normal months: steady prices, little seasonality and mostly recurring revenue. It misleads when the base period is unusual. A seasonal peak, a one-off deal or churn can each make it far bigger than the year that follows. Use it as a snapshot, never as a forecast.

Seasonal businesses

Say you sell tax software. April is your best month by far, and the summer is quiet. Multiply April by 12 and you get a run rate more than double the year you'll actually have. The table above shows the gap.

It happens at national scale too. Here's US online retail in 2025, with each quarter scaled up to a year.

Pick the holiday quarter and you overstate the year by almost a fifth. Pick the first quarter and you understate it. The fix is simple: compare the same month last year, or use your last 12 months.

One-off deals

Say most months bring in $10,000 of subscriptions. Then in July you land a $50,000 implementation project. Multiply July by 12 and you look about four times bigger than you are. The honest version is a recurring run rate built on the subscriptions, plus the project on its own line.

Churn

Say 9% of your subscription revenue cancels every month. Run rate assumes next month looks like this one. But churn compounds. At that pace, about two-thirds of today's revenue is gone within a year. If nothing new comes in, the next year brings in little more than half of what the run rate promised. Nine percent a month is extreme for B2B software. Consumer and AI apps get closer than you'd think. In ChartMogul's 2025 retention data, the median AI-native company kept only 40% of its existing customers' revenue over the year (ChartMogul). Our guide to retention cohorts shows how to build churn into your model.

What run rate mistakes do investors spot?

We see the same five mistakes in model reviews. Founders use their best month as the base, ignore discounts and count one-off deals as recurring. They quote a run rate with no period. And they plan hiring against it. Once an investor finds one, they start to wonder what else in the model is too optimistic.

1. Using your best month — every startup has a hero month: a big customer, a promotion, a launch. Investors ask for the monthly chart and spot it at once.
2. Ignoring discounts — revenue from a half-price month doesn't show what you can charge at full price.
3. Counting one-off deals as recurring — take out setup fees and one-time projects before you multiply, every time.
4. Leaving out the period — "we're at a $1M run rate" tells an investor nothing. They need to know which month or quarter you multiplied.
5. Hiring against it — run rate assumes the pace holds. Plan headcount on actual revenue and your forecast, not on one month × 12.

How do you show run rate to investors?

Label it, clean it and back it up. Say which period it's based on. Take out one-off revenue, and use three months if one month was unusual. Then put recurring revenue and your actual last 12 months next to it. In our work on 500+ financial models since 2014, that's the version that holds up in due diligence.

1. State the period — "$480K annual run rate, based on September 2026 revenue" holds up. "$480K run rate" doesn't.
2. Take out one-off revenue — setup fees, hardware and one-time projects go on their own line.
3. Use three months when one is odd — the last quarter × 4 answers the hero-month question in one move.
4. Pair it with recurring revenue — show it next to MRR or ARR. Then investors can see how much of it repeats.
5. Don't make it the headline — for a subscription business, lead with ARR. For everything else, lead with actual revenue for the last 12 months.

Public companies are expected to do this. SEC guidance asks them for a clear definition of each key metric and how it's calculated (SEC). DigitalOcean, for one, says its "ARR" is the latest quarter's revenue × 4 (DigitalOcean). That's the kind of label investors want to see.

The stakes are real. We interviewed 56 VCs for our Fundraising 2025 study. The top reasons they gave for saying no were revenue growth, unit economics, burn and missed milestones. A run rate that falls apart in diligence hits the first one head on.

Here's what it looks like done properly. A UK fintech app that pays creators came to us before its late seed round. Its growth plan and its finance plan didn't connect. We built a model with separate revenue streams, churn and retention cohorts, and capital efficiency metrics like burn multiple and CAC payback. It took two weeks. The company then raised a £3M late seed round led by UK VCs. See the case.

If you're raising, our financial modeling team builds models that set out run rate, ARR and churn the way investors check them.