Often times you will hear big corporations and Venture capitol firms talk about a “run rate”. Run rates are basically a forecast of how much money a website will make over a given time. If no time periods are specified generally the run rate is for 1 year. For instance if a company says based on first quarter earnings of 1 million dollars we are looking at a run rate of 4 million dollars. So that would be the very very basic definition of a run rate… but its not how its most commonly viewed. Every company has trends. If your selling Barbecues you know that every spring your sales are huge. The same with Boats, Rv’s, Motorcycles, Convertible Cars, etc. You get the point. Vice versa it’s the least profitable time if you are selling snow skii’s, snowmobiles, space heaters… etc. Run rates are one of the easiest skewed numbers there are. A run rate can give a favorable or bad forecast for a company determining what is being factored in. A good measurement is to take historical data for the last 5 years and apply the average trends to your 1 year run rate based on 1st quarter numbers. Basically if the last 5 year data shows that 2nd quarter performs historically 25% lower, 3rd quarter performs 10% better and 4th quarter performs 25% better vs 1st quarter now you have some data for your run rate evaluation.
Now that all sounds fine and dandy but on the internet where market trends happen in the blink of an eye the only thing you can count on is that you can’t count on anything. Internet property financial run rates really need to be examined in tune with the rate of growth metrics as mentioned in the last chapter to truly if you a accurate run rate valuation.