# Revenue Run Rate Calculator

## Answers the Question

How much money will we earn the course of a year?

## What Is the Revenue Run Rate?

Many companies need to have a good idea of how much money they're going to make over the course of the year. The annual run rate (sometimes called the revenue run rate) does just that.

## Why Is it Important?

• Without having an idea of how much money will be coming in, it will be difficult to allocate for expenses. Hiring employees, buying factories, and securing inventory is inherently dangerous, because it requires predictions about future income. Being able to project future income de-risks these tasks.

## Formula(s) to Calculate Revenue Run Rate

• REVENUE RUN RATE = DOLLARS EARNED IN A TIME PERIOD * NUMBER OF TIME PERIODS PER YEAR

## Common Mistakes

• Assuming that the current time period is representative of the entire year.
• Fast growing companies may wish to add a multiplier to subsequent time periods. For instance, a startup doubling its income each year will underestimate its annual run rate.
• Seasonal companies will also experience problems with this formula. The annual run rate will be either too high or too low depending upon the time period being used.
• Occasionally an outlier will occur. A firm may sell off a division, or land an unimaginably large contract. Earnings from these one-off events should normally be excluded from calculations because they are unlikely to repeat.