Run rate is what a recent month or quarter adds up to over a year, if that period simply repeats. Revenue run rate is the latest month times 12, or the latest quarter times 4. The risk is a lumpy quarter, which can hand you three different run rates, and only one of them survives an investor's first question.
How do you calculate run rate?
Run rate is calculated by multiplying revenue for the latest period by the number of such periods in a year. Monthly revenue is multiplied by 12 and quarterly revenue by 4. Expense run rate works the same way, with monthly expenses times 12.
revenue run rate (monthly) = revenue this month x 12 revenue run rate (quarterly) = revenue this quarter x 4 expense run rate = expenses this month x 12
Both Stripe and Bill give the same general rule: revenue for a period times the number of those periods in a year. A $2M quarter becomes an $8M run rate. A $100,000 month becomes $1.2M.
What is the difference between run rate, ARR and trailing twelve months?
Run rate, ARR and trailing twelve months (TTM) all get called "annual revenue" in a pitch, but they answer different questions. Run rate scales the latest period to a year, ARR counts live recurring subscriptions only, and TTM is the revenue actually earned over the last 12 months.
| Figure | What it counts | Question it answers |
|---|---|---|
| Revenue run rate | All revenue in the latest month or quarter, scaled to a year, one-offs included | What is the pace right now? |
| ARR | Live recurring subscriptions only, at annual value (MRR x 12) | What will subscriptions bring in if nothing changes? |
| Trailing twelve months (TTM) | Revenue actually earned over the last 12 months | What did we really make? |
Stripe draws the same line: annualized run rate covers all revenue from a recent period, while annual recurring revenue leaves out one-time payments and variable earnings.
For a growing company the order is usually TTM below ARR, with run rate wherever the latest period happened to land. That last position is the problem.
One lumpy quarter, three run rates
One lumpy quarter can give a company three different run rates. For a seed-stage software company at the end of March, the latest month times 12 gives €600,000, the latest quarter times 4 gives €396,000, and recurring revenue times 12 gives €312,000. Its three months of revenue, in euros:
| Jan | Feb | Mar | Quarter | |
|---|---|---|---|---|
| Subscriptions | 24,000 | 25,000 | 26,000 | 75,000 |
| Implementation fee (one-off) | 0 | 0 | 18,000 | 18,000 |
| Seasonal usage spike (one-off) | 0 | 0 | 6,000 | 6,000 |
| Total revenue | 24,000 | 25,000 | 50,000 | 99,000 |
Two more facts. €9,000 of March's subscription revenue comes from a single large customer. And that customer has given notice: it leaves at the end of April.
Now the three numbers a founder could write down.
latest month x 12 = 50,000 x 12 = 600,000 latest quarter x 4 = 99,000 x 4 = 396,000 recurring x 12 = 26,000 x 12 = 312,000
The first is a March that contains an €18,000 fee and a €6,000 seasonal spike, neither of which comes back in April. It is almost double the recurring figure. The second is better, but it still carries €24,000 of one-offs, multiplied by four. The third counts only what the customer list says is billing every month, and it is the same figure you would call ARR.
For an investor, lead with the recurring figure of €312,000 and label it. If you want to show the broader number, show it as a second line: €396,000 including €24,000 of one-time revenue. Never lead with the €600,000, because the first diligence question ("what is in March?") ends the conversation.
There is a fourth adjustment, and it is the one that matters most. When the large customer leaves, recurring revenue drops by €9,000 a month:
recurring after the notice = (26,000 - 9,000) x 12 = 204,000
If you know the notice is coming, €204,000 is the honest forward figure. €312,000 is true today and wrong from May.
How does expense run rate relate to net burn?
Expense run rate is recent monthly spending times 12, which makes it gross burn annualized. The burn rate guide owns the gross and net definitions. Here the only question is how the revenue you subtract changes net burn and runway. In the example, three months of spending are €38,000, €39,000 and €40,000, a €117,000 quarter.
expense run rate = (117,000 / 3) x 12 = 39,000 x 12 = 468,000
Averaging three months before multiplying smooths out the month where an annual bill landed.
Suppose the company has €150,000 in the bank, and treat revenue as cash received. Three ways to compute net burn, and the runway each implies:
| Revenue used | Monthly net burn | Runway on €150,000 |
|---|---|---|
| Quarter average, one-offs included (99,000 / 3 = 33,000) | 39,000 - 33,000 = 6,000 | 25 months |
| Recurring today (26,000) | 39,000 - 26,000 = 13,000 | 11.5 months |
| Recurring after the notice (17,000) | 39,000 - 17,000 = 22,000 | 6.8 months |
The runway runs from just over two years to under seven months for one company with one bank balance, and the difference is entirely which revenue you let into the run rate. The one-offs are real cash that is already in the bank, so they are worth something, but they should not reduce the burn figure you plan hiring around.
When does run rate mislead?
Run rate misleads when the recent period is not typical. Wall Street Prep points out that it can be deceiving for seasonal businesses, and that clustered churn and one-time sales are not captured. Seasonality, one-off deals, a customer just lost or won, and a mid-month price change distort it most often.
Seasonality. A company that does a third of its business in November cannot multiply a November by 12. Use a trailing twelve-month figure, or compare against the same month last year.
One-off deals. The implementation fee and the usage spike above. Strip out anything that does not recur monthly before you annualize, or use the recurring figure from the start.
A customer you just lost, or just won. Recurring run rate reflects the customer list as it stands. If a big account has given notice, adjust the figure for the date it leaves, as in the €204,000 above. The same goes for a signed contract that has not started billing: show it separately, labelled.
A price change mid-month. Suppose a €100 plan goes to €120 on the 16th and is billed pro rata. The month shows about €110 per customer, so month times 12 gives €1,320 a year, while the real forward figure is €1,440. Run rate lags a price change by up to a full month. Use the new price times the live customer count instead.
Exclude one-offs, and average the last three months of recurring revenue next to the latest month. If the latest month is far from the average, find out why before you trust either.
How do investors read a run rate claim?
Investors treat a run rate in a deck as a claim that will be checked. Stripe calls annualized run rate more speculative than ARR because it assumes the current period extends over a year. Bill notes that a run rate without context such as burn rate can create unrealistic expectations, especially for early-stage startups.
Wall Street Prep adds that the figure is most credible when the growth profile supports it, and most useful for fast-growing companies that have operated for a short time.
Claims like this get checked, so state which revenue is in the figure, be ready to show the customer list that adds up to it, and put burn next to it, because a big run rate with a bigger cost base is a worse story than a small one that pays for itself. If you want the recurring number calculated for you, the ARR calculator and the MRR calculator take your plans and customer counts, and the burn rate calculator does the cost side.
Keeping the recurring run rate current
In Plainhub, the recurring run rate comes straight from how you record money. MRR is calculated from the customers you record (active, billed on a recurring plan, not one-time) plus income entries marked recurring, and one-off income does not count. Multiply the MRR by 12 and the recurring run rate is always current, with no spreadsheet to rebuild at month end.
Net burn is monthly expenses minus that MRR.
Plainhub is not accounting software, and it does not predict your future revenue. The run rate it shows is arithmetic on the numbers you entered.
What to do next
Start with your latest month and quarter of revenue and finish with the runway implied by recurring revenue. Four steps get you there: split out one-offs, compute the recurring run rate, adjust for known notices and signed contracts, and read runway from an expense run rate net of recurring revenue.
- Write down your latest month and quarter of revenue, then split out everything that will not repeat.
- Compute the recurring run rate and compare it with the headline figure. The gap is what you would be explaining in diligence.
- Adjust for known notices and signed-but-not-started contracts, and label them.
- Compute your expense run rate from a three-month average, subtract recurring revenue, and read the runway from that.
Once the run rate is straight, the stage-by-stage metric set shows which other numbers to track next.