Tracking your revenue run rate is one of the best ways to understand how quickly you are growing.
Revenue run rate, or RRR, is the number that shows what your company’s monthly or annual revenue would be if you were running at a steady pace over the past 12 months. It also helps you focus on performance and growth rather than just looking at numbers.
A high RRR means that your business is growing rapidly, while a negative number means that your business might not be sustainable or profitable. Here are some ways the revenue run rate can help you make smart decisions for your company.
How to calculate your revenue run rate
RRR is calculated by taking a company’s average monthly revenue over the past year and multiplying it by 12. For example, if your business has an average monthly revenue of $100,000 over the past 12 months, your RRR would be $1,200,000.
It’s important to note that RRR doesn’t take into account seasonal or cyclical fluctuations in revenue. You might have higher monthly revenues at certain points during the year and lower ones at other points. Those fluctuations won’t affect your calculation as long as you’re averaging out those numbers for a full 12 months.
Look at the big picture
Tracking your revenue run rate can help you focus on what matters most.
It’s all too easy to get caught up in daily distractions and lose sight of the bigger picture. Your business is more than a daily number. When you track your RRR, you can see how your business is performing over a 12-month period of time. Many businesses will have a higher RRR at certain points during the year and a lower one at other times. It’s important to understand these seasonal trends in order to make smart decisions about what changes need to be made for your business to continue flourishing.
If you keep seeing a negative number, it may be time to make some changes before it’s too late.
Decide how much to invest
At any given moment, your company might be in one of three stages. You either have a flat or declining RRR, an increasing RRR, or a negative RRR. Your business is in the “flat” stage if you are not experiencing much in the way of revenue growth. If you are in the “increasing” stage, but your revenue run rate is slowing down, it might be time to evaluate how much you’re spending on marketing and advertising.
A stagnant or declining revenue run rate means that your company is going through a rough patch and needs to shift its focus from new customers or work to retain existing customers. If you have a negative RRR, then it’s time to reevaluate what’s going wrong and find ways to fix it,
Track and report your RRR
RRR can be used to track your revenue over the last 12 months to see what your company’s current monthly or annual revenue might be.
If you are a growing company, then you will likely have a high RRR because your business is running at a steady pace. For example, if your RRR is $30,000 over the past 12 months, then it means that if you were running at this pace consistently over the last 12 months, your company would have made $360,000 in total revenues.
You can use this information to calculate how much revenue you are generating each month and project how much your company could potentially make each year if it kept up this performance.
The importance of the RRR
It’s important to track your revenue run rate because it helps you understand how your business is doing. When you calculate your RRR, you’ll be able to see how much money you are making on average over the past 12 months. With this information, you can see how quickly your company is growing or shrinking and make decisions accordingly.
A high RRR means that your business is growing rapidly, while a negative number means that your business might not be profitable or sustainable. RRR can help you decide if it’s time to raise prices or hire more employees—or whether it’s time to scale back on certain expenses. You can use this metric to know when it might be appropriate to move into a new office space, buy more inventory, or invest in marketing campaigns.
Revenue run rate tells you whether your company is growing or not. It also helps you to focus on performance and growth rather than just looking at numbers. RRR is a better indicator of your company’s health as it can show if your business is slowing down or speeding up over time.
In the end, revenue run rates help your business make smart decisions about what to do next.