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Definition
A business projects the revenue that will be produced if they continue to carry out the same operation or activity based on historical or current data on revenue. It is possible to predict the revenue for the future week, month, quarter, or year. As a result, it is also known as the Annual Run Rate (ARR).
Why is it useful?
By knowing the run rate, companies can compare their (yearly) set target with the actual numbers that they’ll hit if they go with the same speed while assuming little or no changes in the market. With the help of knowing the run rate, companies can set out to do a number of experiments, control levers, & push different expenditures like campaigns to increase their revenue in order to reach their set goal.
Example
For the September quarter of 2022, Spotify had ~300 crores ($3 Billion) in revenue.
If they do nothing differently for the next 1 year, their Annual Run Rate will be ~1200 crore ($12 Billion).
Based on the past or current data on revenue, a company project’s revenue will be generated if they continue to do the same operation/activity.