Annual run rate (ARR)
In short
Annual run rate is a projection that takes revenue from a recent period, such as a month or quarter, and scales it to a full year. It assumes current performance continues unchanged.
It is not the same as annual recurring revenue, even though both are shortened to ARR. Run rate extrapolates any revenue, including one-time sales. Recurring revenue counts only contracted subscription revenue.
How to calculate annual run rate
- From a month: Monthly revenue x 12.
- From a quarter: Quarterly revenue x 4.
- Example: Say a company books $150,000 in a month. Its annual run rate is $1.8 million.
When run rate is useful
Run rate gives fast, rough answers when you do not have a full year of history.
- Early-stage companies: A new business can describe its scale before a full year closes.
- Quick planning checks: Teams compare the current pace with the annual target to see whether they are ahead or behind.
- Fast-growing products: It shows momentum that trailing 12-month revenue would hide.
Where run rate misleads
Seasonality
A strong quarter at year end, scaled by four, overstates the year. A slow quarter understates it.
One-time revenue
A single large project or a spike in services revenue inflates the figure because it will not repeat.
Churn and growth
The method ignores customers who will leave and customers who will join.
Annual run rate vs. annual recurring revenue
When you report to a board or investors, say which one you mean. Annual recurring revenue is built from active subscription contracts and is more reliable for forecasting. Annual run rate is a simple extrapolation and is best labelled as an estimate.
Annual run rate FAQs
What is annual run rate?
Annual run rate is a projection of full-year revenue based on a shorter recent period, such as multiplying one month by 12. It assumes current performance stays the same and gives a quick estimate of where revenue is heading.
How do you calculate annual run rate?
Multiply revenue from a recent period by the number of those periods in a year. Monthly revenue is multiplied by 12 and quarterly revenue by 4. For example, $150,000 in one month gives an annual run rate of $1.8 million.
Is annual run rate the same as annual recurring revenue?
No. Annual run rate extrapolates recent revenue of any kind, including one-time sales. Annual recurring revenue counts only the yearly value of active subscription contracts. They share the abbreviation ARR, so state which one you are reporting.
What are the limitations of annual run rate?
It ignores seasonality, one-time revenue, churn, and future growth, so a spike or slump in the base period distorts it. Use it as a rough pace check and back it with trailing revenue and contracted recurring revenue.
