The Annualized Run Rate Formula Every SaaS CEO Misuses (And the Fix)

Most SaaS CEOs use the phrase annu­al­ized run rate the same way they use ARR — inter­change­ably, casu­al­ly, and almost always incor­rect­ly. The two are not the same met­ric, and the dif­fer­ence mat­ters most in the rooms where mon­ey changes hands: board meet­ings, fundrais­es, and acqui­si­tion nego­ti­a­tions. Annu­al­ized run rate is a pro­jec­tion method — take any short peri­od of activ­i­ty and extend it out to a full year. ARR is a spe­cif­ic appli­ca­tion of that method to recur­ring sub­scrip­tion rev­enue only. Con­flate the two and you will either over­sell your busi­ness (and get pun­ished in dili­gence) or under­sell it (and leave mon­ey on the table at exit).

This guide sep­a­rates the two clean­ly, shows the four most com­mon ways founders get annu­al­ized run rate wrong, gives you the exact for­mu­las with worked numer­i­cal exam­ples for a $1.5M run-rate SaaS, and explains how acquir­ers and investors will re-derive your num­ber from scratch — so you can report it the same way they will com­pute it.

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What Annualized Run Rate Actually Means

Annu­al­ized run rate is the result of tak­ing a sub-annu­al mea­sure­ment of a finan­cial met­ric and math­e­mat­i­cal­ly extend­ing it to rep­re­sent one full year. The most com­mon ver­sion takes the most recent mon­th’s rev­enue, mul­ti­plies by 12, and calls the result the “annu­al­ized run rate.” The most aggres­sive ver­sion takes the most recent week or day, makes assump­tions about work­days per year, and projects from there.

The for­mu­la in its most gen­er­al form:

Annu­al­ized Run Rate = (Met­ric for Sub-Annu­al Peri­od) × (Annu­al Peri­ods / Peri­od Used)

In prac­tice, the three ver­sions you will see in the wild are:

• Month­ly run rate annu­al­ized: Most Recent Month × 12
• Quar­ter­ly run rate annu­al­ized: Most Recent Quar­ter × 4
• Trailing‑N run rate annu­al­ized: (Sum of Last N Months / N) × 12

Annu­al­ized run rate is, by con­struc­tion, a for­ward-look­ing pro­jec­tion dressed up as a cur­rent mea­sure­ment. It tells the read­er: if the most recent peri­od con­tin­ues unchanged for a full year, here is what the annu­al total would be. That “if” is doing an enor­mous amount of work — and nine­ty per­cent of the time it is invis­i­ble to the per­son read­ing the num­ber.

The Single Most Important Thing to Understand About Run Rate

Annu­al­ized run rate is not a fact about your busi­ness. It is a hypoth­e­sis. Specif­i­cal­ly, it is the hypoth­e­sis that what­ev­er hap­pened in your most recent mea­sure­ment win­dow will con­tin­ue hap­pen­ing, unchanged, for the next twelve months. The short­er the win­dow, the more aggres­sive the hypoth­e­sis. A run rate built from a sin­gle month assumes that mon­th’s rev­enue will repeat eleven more times in a row, with no churn, no sea­son­al­i­ty, no expan­sion, no con­trac­tion, and no eco­nom­ic sur­pris­es. That is a strong claim. Treat it that way.

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Annualized Run Rate vs ARR: The Distinction Most SaaS CEOs Miss

This is where the lan­guage con­fu­sion starts cost­ing real mon­ey. In SaaS con­ver­sa­tion, three terms get used inter­change­ably when they should not:

Term	What it Actually Measures	Restricted To Recurring Revenue?
ARR (Annual Recurring Revenue)	Forward-looking value of contractually committed, repeating subscription revenue over the next 12 months	Yes — recurring only
Annualized Run Rate (general)	Any sub-annual metric extrapolated to a full year using simple multiplication	No — applies to any line item
Annualized Revenue Run Rate (sometimes "Revenue Run Rate")	The most recent period's total revenue (recurring + non-recurring) projected to a full year	No — includes everything

The rea­son this mat­ters: a $1M month­ly rev­enue month that includes $700K of recur­ring sub­scrip­tions and $300K of one-time imple­men­ta­tion fees pro­duces three com­plete­ly dif­fer­ent num­bers depend­ing on which def­i­n­i­tion you use.

• True ARR: $700K × 12 = $8.4M (recur­ring only — the right num­ber for SaaS val­u­a­tion)
• Annu­al­ized rev­enue run rate: $1M × 12 = $12M (total rev­enue × 12 — the num­ber a care­less founder reports)
• Trail­ing-12-month rev­enue: Depends on the actu­al full year (could be low­er than $12M if imple­men­ta­tion was lumpy)

The $3.6M gap between the first and sec­ond num­ber is the gap between what you actu­al­ly built and what you want investors to think you built. An acquir­er or sophis­ti­cat­ed investor will spot it in fif­teen min­utes. The unso­phis­ti­cat­ed read­er will quote your $12M num­ber back to you for years and ask why you missed the implied tar­get.

The Practical Rule

For inter­nal man­age­ment report­ing, annu­al­ized run rate is fine as a work­ing num­ber — it’s fast, it’s easy, and the exec­u­tive team under­stands the assump­tions baked in. For exter­nal report­ing to investors, acquir­ers, lenders, or any­one whose check size depends on it, always report ARR (recur­ring only), and label any run-rate-based num­ber explic­it­ly as such. Don’t say “$12M run rate.” Say “$8.4M ARR plus $300K month­ly non-recur­ring rev­enue.”

The rea­son: investors and acquir­ers will recom­pute your num­bers regard­less of what you report­ed. If your ver­bal num­ber is high­er than the one they back into, the gap erodes trust. If it’s the same, you sig­naled rig­or. The price of the con­ver­sa­tion drops in the first case and ris­es in the sec­ond.

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The Annualized Run Rate Formula, Step by Step

There is no sin­gle annu­al­ized run rate for­mu­la — there is a fam­i­ly of them, and the right one depends on what you are mea­sur­ing and what assump­tion you want to make about the future. Here are the three ver­sions you will use in prac­tice.

Version 1: Most Recent Month × 12

The sim­plest and most com­mon form.

Annu­al­ized Run Rate = Most Recent Full Month of the Met­ric × 12

Use this when:

• The busi­ness is grow­ing steadi­ly and the most recent month is rep­re­sen­ta­tive
• You need a quick num­ber for an inter­nal meet­ing
• The met­ric you’re annu­al­iz­ing is not sea­son­al

Avoid this when:

• The most recent month includ­ed one-time events (a big con­tract clos­ing, a refund, a churn cliff)
• The busi­ness is high­ly sea­son­al (e.g., rev­enue spikes around year-end renewals)
• Any sin­gle month is large enough to swing the result by more than 10%

Version 2: Most Recent Quarter × 4

A more sta­ble but less reac­tive ver­sion.

Annu­al­ized Run Rate = Most Recent Full Quar­ter of the Met­ric × 4

Use this when:

• Month­ly num­bers are noisy but quar­ter­ly trends are clear
• You want to smooth out one-time spikes or drops
• The audi­ence expects quar­ter­ly report­ing (board, pub­lic investors)

The trade-off: you are report­ing a num­ber that lags by up to four months. A busi­ness grow­ing 10% per month will have a quar­ter­ly-annu­al­ized run rate that’s rough­ly 15% below the tru­ly cur­rent month­ly-annu­al­ized fig­ure.

Version 3: Trailing‑N Months Averaged × 12

The most defen­si­ble ver­sion for exter­nal report­ing.

Annu­al­ized Run Rate = (Sum of Last N Months of the Met­ric / N) × 12

The stan­dard choic­es for N are 3, 6, and 12. Investors most com­mon­ly use trailing‑3 months (T3M) for SaaS — it smooths out sin­gle-month noise with­out lag­ging too far behind cur­rent per­for­mance.

Use this when:

• You’re report­ing to investors, acquir­ers, or any­one doing finan­cial due dili­gence
• The met­ric has mean­ing­ful month-to-month volatil­i­ty
• You want a num­ber you can defend in a dili­gence room with a sin­gle phrase: “trail­ing-three-month annu­al­ized.”

This is the ver­sion a com­pe­tent CFO will lead with. It is the ver­sion a sophis­ti­cat­ed acquir­er will recom­pute. Report this one and the gap between your num­ber and theirs will be mea­sured in pen­nies.

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A Worked Example: One $1.5M Business, Four Different Run Rates

To make the math con­crete, here is a sin­gle SaaS busi­ness mea­sured four dif­fer­ent ways. The com­pa­ny has six months of rev­enue his­to­ry:

Month	Subscription Revenue	One-Time Services Revenue	Total Revenue
Month 1	$90,000	$20,000	$110,000
Month 2	$95,000	$15,000	$110,000
Month 3	$100,000	$25,000	$125,000
Month 4	$105,000	$10,000	$115,000
Month 5	$112,000	$40,000	$152,000
Month 6	$118,000	$30,000	$148,000

Now com­pute the four most com­mon ways to describe this busi­ness’s “annu­al­ized” per­for­mance:

1. Most Recent Month × 12 (Total Rev­enue): $148,000 × 12 = $1,776,000 annu­al­ized rev­enue run rate. This is the num­ber the opti­mistic founder reports. It bakes in the assump­tion that a $40K-then-$30K ser­vices spike will con­tin­ue for the next twelve months.
2. Most Recent Month × 12 (Sub­scrip­tion Only — ARR Proxy): $118,000 × 12 = $1,416,000 ARR. This is clos­er to true ARR. It excludes the one-time ser­vices rev­enue and projects the most recent mon­th’s sub­scrip­tion base for­ward. Still aggres­sive because it assumes zero churn and zero expan­sion for the next 12 months.
3. Trail­ing-3-Month Annu­al­ized (Total Rev­enue): (($115,000 + $152,000 + $148,000) / 3) × 12 = ($138,333) × 12 = $1,660,000. This is what a dili­gent investor would com­pute on their own. It smooths out the Month 5 ser­vices spike and gives a more defen­si­ble pro­jec­tion.
4. Trail­ing-3-Month Annu­al­ized (Sub­scrip­tion Only — Defen­si­ble ARR): (($105,000 + $112,000 + $118,000) / 3) × 12 = ($111,667) × 12 = $1,340,000 ARR. This is the num­ber a SaaS CFO should lead with in any exter­nal con­ver­sa­tion. It is con­ser­v­a­tive, defen­si­ble, and iso­lates the recur­ring engine from the lumpy ser­vices line.

What This Example Shows

The gap between num­ber 1 ($1.78M) and num­ber 4 ($1.34M) is $436,000 — rough­ly 33% of the low­er fig­ure. The same busi­ness, look­ing at the same six months of data, can be hon­est­ly described as a $1.34M ARR com­pa­ny or dis­hon­est­ly described as a $1.78M run-rate com­pa­ny.

At a 6× ARR val­u­a­tion mul­ti­ple, that gap trans­lates to $2.6 mil­lion of head­line val­u­a­tion dif­fer­ence. At a 10× mul­ti­ple in a hot mar­ket, it’s $4.4 mil­lion. This is why the choice of for­mu­la is not a math ques­tion — it’s a cred­i­bil­i­ty ques­tion that com­pounds into a price ques­tion.

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Four Ways CEOs Miscalculate Annualized Run Rate

These are the four mis­takes I see repeat­ed­ly in board decks, fundraise mate­ri­als, and acqui­si­tion nego­ti­a­tions. Each one is recov­er­able if caught ear­ly and dam­ag­ing if shipped to a sophis­ti­cat­ed coun­ter­par­ty.

Mistake 1: Annualizing Total Revenue and Calling It ARR

The most com­mon error. The CEO takes a sin­gle mon­th’s total rev­enue — includ­ing imple­men­ta­tion fees, pro­fes­sion­al ser­vices, vari­able usage above con­tract­ed min­i­mums, and one-time train­ing charges — mul­ti­plies by 12, and reports the result as ARR.

This is wrong because ARR is restrict­ed to recur­ring con­tract­ed rev­enue. The non-recur­ring por­tion either does­n’t repeat (one-time fees) or repeats unpre­dictably (vari­able usage). Annu­al­iz­ing it over­states the pre­dictable rev­enue base, which is the only rev­enue base an acquir­er cares about.

The fix: Strip out every non-recur­ring line item before mul­ti­ply­ing. The right num­ber to annu­al­ize is con­trac­tu­al­ly com­mit­ted sub­scrip­tion rev­enue, full stop. If a con­tract has a min­i­mum-plus-usage struc­ture, count only the min­i­mum. If ser­vices rev­enue recurs because the cus­tomer has a mul­ti-year SOW, you may include the recur­ring por­tion — but flag it sep­a­rate­ly.

Mistake 2: Annualizing a Spike Month

A founder clos­es three enter­prise deals in the same month, watch­es sub­scrip­tion rev­enue jump 40%, mul­ti­plies by 12, and reports the new num­ber as the com­pa­ny’s run rate. Six months lat­er, when no equiv­a­lent month has repeat­ed, the gap between report­ed and actu­al rev­enue becomes a cred­i­bil­i­ty prob­lem with the board.

The math says: if this con­tin­ues for 12 months, the annu­al total is X. The busi­ness real­i­ty says: one anom­alous month will not con­tin­ue for 12 months. The read­er inter­prets X as a mea­sure­ment of the present, not a pro­jec­tion of an out­lier.

The fix: Use trail­ing-3-month or trail­ing-6-month aver­ages for any exter­nal report­ing. They smooth sin­gle-month spikes and give a num­ber that holds up over the next two quar­ter­ly check-ins. If a sin­gle month was gen­uine­ly trans­for­ma­tion­al (e.g., a $1M enter­prise con­tract that will recur month­ly for three years), report the under­ly­ing con­tract struc­ture sep­a­rate­ly so the read­er under­stands what changed.

Mistake 3: Annualizing Without Adjusting for Churn

A CEO reports a $1.2M ARR fig­ure based on $100K of sub­scrip­tion rev­enue × 12. The under­ly­ing cus­tomer base has 3% month­ly logo churn. Twelve months lat­er, with no new cus­tomer acqui­si­tion, the actu­al sub­scrip­tion rev­enue from that start­ing cohort is clos­er to $70K per month — not $100K. The “annu­al­ized” fig­ure assumed zero attri­tion over the pro­jec­tion win­dow.

This is not a small effect. Month­ly churn of 3% com­pounds — it is not equiv­a­lent to 36% annu­al churn. The com­pound math gives an annu­al reten­tion rate of (1 − 0.03)^12 = 69.4%, mean­ing the com­pa­ny keeps rough­ly 70% of start­ing rev­enue after 12 months, not 64%. (Most peo­ple get this wrong in the oth­er direc­tion — see the math on churn com­pound­ing.)

The fix: Annu­al­ized run rate is a gross pro­jec­tion. It tells you what rev­enue would be if noth­ing changed. When report­ing exter­nal­ly, pair the run rate with reten­tion assump­tions and a sep­a­rate net-of-churn for­ward pro­jec­tion. The two togeth­er give a defen­si­ble num­ber; the run rate alone does not.

Mistake 4: Annualizing Bookings Instead of Revenue

A SaaS com­pa­ny signs $300K of new annu­al con­tracts in March. The CEO writes “March book­ings: $300K, annu­al­ized: $3.6M” in the board deck. But book­ings are not rev­enue. A $300K annu­al con­tract signed in March pro­duces $25K of rev­enue per month from April onward — not $300K per month. Annu­al­iz­ing March book­ings × 12 is a cat­e­go­ry error that con­flates two dif­fer­ent met­rics.

The fix: Annu­al­ize rev­enue (what you actu­al­ly rec­og­nized that month) or annu­al­ize con­tract val­ue (the total com­mit­ted) — nev­er the gross book­ings num­ber mul­ti­plied by 12. The cor­rect way to express new busi­ness momen­tum is “net new ARR” — the change in the recur­ring rev­enue base from one month to the next — not annu­al­ized book­ings.

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How Investors and Acquirers Will Recompute Your Run Rate

This is the part most founders under­es­ti­mate. Any­one writ­ing a check above $1M will not take your report­ed run rate at face val­ue. They will rebuild it from your under­ly­ing data, and they will use a method­ol­o­gy designed to find the gap between your num­ber and theirs.

What a Sophisticated Buyer Actually Does

1. Pulls 24 months of month­ly rev­enue data from your account­ing sys­tem (not your board deck).
2. Sep­a­rates recur­ring from non-recur­ring by exam­in­ing indi­vid­ual cus­tomer con­tracts and invoice line items. This is line-by-line work, and they will do it.
3. Com­putes trail­ing-3-month and trail­ing-12-month aver­ages inde­pen­dent­ly of what­ev­er num­ber you pro­vid­ed.
4. Backs out churn and con­trac­tion using cohort analy­sis to val­i­date that the recur­ring base is actu­al­ly durable.
5. Com­pares their com­put­ed num­bers to your report­ed num­bers. Mate­r­i­al gaps trig­ger either a price hair­cut or a rene­go­ti­a­tion of deal terms.

The val­u­a­tion mul­ti­ple they apply will be based on their num­ber, not yours. If your report­ed $2M ARR is actu­al­ly $1.6M in their com­pu­ta­tion, the entire val­u­a­tion con­ver­sa­tion re-anchors at $1.6M.

What This Means for How You Report

The right behav­ior is to report the num­ber the buy­er will com­pute, not the num­ber you’d like them to see. A short list of prac­tices that buy you cred­i­bil­i­ty:

• Lead with trail­ing-3-month sub­scrip­tion rev­enue × 12 as the pri­ma­ry num­ber
• Show the under­ly­ing month­ly rev­enue table for the past 12+ months
• Sep­a­rate recur­ring from non-recur­ring rev­enue explic­it­ly on every slide
• Dis­close the churn assump­tion you’re using and apply it to for­ward pro­jec­tions
• Dis­tin­guish book­ings, billings, and rev­enue clear­ly — nev­er blend them in a sin­gle “growth” num­ber

Founders who do this con­sis­tent­ly get high­er mul­ti­ples because the dili­gence process moves faster and the buy­er’s trust com­pounds. Founders who don’t get either a slow­er process, a low­er price, or both.

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When Annualized Run Rate Is the Right Number to Use

Despite all the caveats above, there are sit­u­a­tions where annu­al­ized run rate is gen­uine­ly the most use­ful met­ric to report. These are the cas­es where the met­ric earns its keep:

1. Inter­nal man­age­ment report­ing. When the CEO and CFO are look­ing at the most recent month, the implic­it assump­tion that per­for­mance will con­tin­ue is fine because every­one in the room under­stands the assump­tion. The num­ber is a pace check, not a fore­cast.
2. Mid-year report­ing on a con­tract that just start­ed. A SaaS com­pa­ny signs a $600K annu­al con­tract in July. By Decem­ber, the recur­ring rev­enue from that con­tract is $50K per month. Annu­al­iz­ing the Decem­ber num­ber gives the full $600K — which is the right num­ber to report because the con­tract is already in force.
3. Fast-mov­ing ear­ly-stage busi­ness­es where trail­ing data is unrep­re­sen­ta­tive. A pre-prod­uct-mar­ket-fit SaaS that dou­bled cus­tomer count in Q4 and is on track to dou­ble again in Q1 can­not use trail­ing-12-month aver­ages — they would dra­mat­i­cal­ly under­state the cur­rent pace. Month­ly annu­al­iza­tion (with caveats) is the only use­ful fram­ing.
4. Com­mu­ni­cat­ing with non-finan­cial audi­ences. “Our run rate is $10M” lands faster than “our trail­ing-3-month annu­al­ized recur­ring rev­enue is $9.4M.” For audi­ences that need a direc­tion­al­ly cor­rect num­ber quick­ly — board mem­bers at first meet­ing, jour­nal­ists, recruits — run rate is the appro­pri­ate short­hand.

The pat­tern: annu­al­ized run rate is fine when the audi­ence under­stands what they’re look­ing at, and is dan­ger­ous when they don’t. The CEO’s job is to know which audi­ence they’re in front of and adjust accord­ing­ly.

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Annualized Run Rate, ARR, and Forward-Looking Forecasts: How They Connect

To put the full pic­ture togeth­er, here’s how annu­al­ized run rate fits next to the oth­er rev­enue met­rics on your dash­board:

Metric	Time Horizon	Recurring Only?	Used For
MRR	Current month	Yes	Operational tracking, board cadence
ARR	Forward 12 months (committed)	Yes	Investor reporting, valuation
Annualized Revenue Run Rate	Forward 12 months (projected from recent period)	No (or sometimes)	Quick internal estimates
Trailing-12-Month Revenue (TTM)	Backward 12 months (actual)	No	Diligence, audited financials
Forward Revenue Forecast	Forward 12 months (modeled)	No	Budget, fundraise pro forma

The key rela­tion­ships:

• ARR is a sub­set of annu­al­ized rev­enue run rate. ARR strips out non-recur­ring rev­enue; the broad­er run rate does­n’t.
• TTM is the back­ward-look­ing coun­ter­part to run rate. TTM is what actu­al­ly hap­pened over the past year; run rate is what would hap­pen over the next year if the most recent peri­od con­tin­ued.
• A for­ward fore­cast is the most rig­or­ous ver­sion. It bakes in churn, growth, sea­son­al­i­ty, and known con­tract events — where­as run rate assumes every­thing stays flat.

A well-run SaaS finance func­tion tracks all five and reports the right one for the audi­ence and the ques­tion. A poor­ly-run one picks the high­est num­ber and calls it ARR.

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Frequently Asked Questions About Annualized Run Rate

Is annualized run rate the same as ARR?

No. ARR is restrict­ed to con­trac­tu­al­ly com­mit­ted recur­ring rev­enue, pro­ject­ed for­ward 12 months. Annu­al­ized run rate is any sub-annu­al met­ric extend­ed to a full-year equiv­a­lent using sim­ple mul­ti­pli­ca­tion. ARR is a spe­cif­ic appli­ca­tion of the annu­al­ized run rate con­cept to sub­scrip­tion rev­enue only. Treat­ing them as syn­onyms is the most com­mon SaaS report­ing mis­take.

What is the formula for annualized run rate?

The most com­mon form is: Annu­al­ized Run Rate = Most Recent Month × 12. More defen­si­ble forms use trail­ing aver­ages — for exam­ple, Trail­ing-3-Month Annu­al­ized = (Sum of Last 3 Months / 3) × 12. Quar­ter­ly ver­sions mul­ti­ply by 4 instead of 12.

Why do investors recompute annualized run rate from scratch?

Because the method­ol­o­gy used to derive a run rate dra­mat­i­cal­ly affects the num­ber. A sin­gle-month pro­jec­tion of a spike month can over­state true rev­enue by 20–40%. Investors recom­pute using trail­ing-3-month or trail­ing-12-month aver­ages, sep­a­rate recur­ring from non-recur­ring rev­enue, and apply churn assump­tions to for­ward pro­jec­tions. The buy­er’s num­ber — not the sell­er’s num­ber — dri­ves the val­u­a­tion mul­ti­ple.

When should I use annualized run rate vs ARR?

Use ARR for any exter­nal report­ing where SaaS val­u­a­tion is on the table — fundrais­es, board updates, acqui­si­tion dis­cus­sions, lender con­ver­sa­tions. Use annu­al­ized run rate for fast inter­nal esti­mates, mid-year con­tract checks, and audi­ences that need a direc­tion­al num­ber quick­ly. Nev­er use total-rev­enue run rate as a sub­sti­tute for ARR when report­ing to investors — it over­states the recur­ring base.

What is the difference between run rate and TTM revenue?

Run rate is for­ward-look­ing — it projects the most recent peri­od out to a full year. TTM (trail­ing-twelve-month) rev­enue is back­ward-look­ing — it sums the actu­al rev­enue from the past 12 months. A grow­ing busi­ness will have a high­er run rate than TTM; a declin­ing busi­ness will have a low­er run rate than TTM. The gap between the two is one of the fastest sig­nals of busi­ness direc­tion.

How do I report annualized run rate to a board?

Lead with trail­ing-3-month annu­al­ized recur­ring rev­enue as your pri­ma­ry num­ber. Show the under­ly­ing month­ly sub­scrip­tion rev­enue table for the trail­ing 12 months. Sep­a­rate recur­ring from non-recur­ring rev­enue on every slide. State the churn assump­tion you’re apply­ing to for­ward pro­jec­tions. Dis­tin­guish book­ings, billings, and rev­enue clear­ly. This is the for­mat a sophis­ti­cat­ed board expects and the for­mat that builds cred­i­bil­i­ty with future investors and acquir­ers.

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The CEO’s Job on This Metric

The annu­al­ized run rate ques­tion is not a math ques­tion. The math is triv­ial — mul­ti­pli­ca­tion is the only oper­a­tion involved. The ques­tion is whether the CEO can pick the right for­mu­la for the right audi­ence, label it accu­rate­ly, and report num­bers that hold up when the next sophis­ti­cat­ed read­er recom­putes them.

Founders who win on this are not the ones with the high­est report­ed num­ber. They are the ones whose report­ed num­ber match­es the num­ber the acquir­er com­putes in dili­gence. That match is what unlocks the val­u­a­tion mul­ti­ple. Every­thing else is the­ater that ends bad­ly.

Pick the for­mu­la. Show the work. Report the num­ber you’d want to hear your­self if you were on the oth­er side of the table.