Key Insight
Run rate assumes today looks like tomorrow. That's a fine assumption when the business is growing steadily — and a dangerous one when the most recent months are anomalously good or when seasonality is in play.
How Run Rate Is Calculated
Annual Run Rate = Most Recent Month's Revenue × 12 or Annual Run Rate = Most Recent Quarter's Revenue × 4
A business generating $150,000/month has an annual run rate of $1.8M.
Run rate is a forward-looking projection. TTM (trailing twelve months) is backward-looking — actual results over the past year. They serve different analytical purposes.
When Run Rate Is Useful
Growing businesses: If a business grew from $1M to $1.4M in the last 12 months and is currently at $1.5M annualized run rate, the run rate better captures current momentum than TTM.
Recurring revenue: SaaS and subscription businesses with MRR use run rate (ARR = MRR × 12) as a standard metric because the revenue is predictable and contracted.
Recent contract additions: If a service business just signed a major contract that doubles its monthly revenue, TTM understates the current business. Run rate captures the new baseline.
When Run Rate Is Misleading
Seasonality: A lawn care business doing $80K/month in June extrapolated to $960K annual run rate is meaningless — the business goes to near-zero in winter. Always use full-year TTM for seasonal businesses.
One-time revenue: Run rate based on a month with unusual revenue (a large project, a contract that won't recur) overstates sustainable run rate.
Declining businesses: Sellers sometimes use run rate from the best recent months while TTM would show declining performance. Always reconcile the two.
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