Run Rate refers to the concept of estimating a company’s future performance or financial results by extrapolating its current or recent results over a longer time period. Analysts and companies use Run Rate to measure ongoing revenue, expenses, or profits if current conditions persist. For example, if a business generates $1 million in revenue in a month, its annual run rate would be $12 million assuming similar revenue every month.
Run Rate is particularly useful for rapidly growing or evolving companies to set expectations for scaling or for businesses with seasonal revenues as it can give insight to general trends despite seasonal fluctuations. An example usage would be, "Based on our Q1 revenue figures, we are projecting an annual revenue run rate of $5 million." While it's helpful for trend evaluation, Run Rate assumes stability, which may not be accurate if there are unforeseen changes in business conditions.