Compounded Monthly Growth Rate: Understanding and Calculating Compounded Monthly Growth Rates

Contributors: Manjusha Karkera
Published: January 5, 2023

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Introduction to Compounded Monthly Growth Rate

One of the most important and the most challenging metrics to achieve for a business is exponential growth. Sustained exponential growth gives potential investors an idea of how well a company is doing. To measure the potential growth of a business, it is essential to determine the concept of a month-over-month growth rate. A monthly growth rate helps with understanding the cyclicality of a company’s performance.

What does Compound Monthly Growth Rate mean?

Compound Monthly Growth Rate or CMGR is the average month-over-month growth rate over a more extended period which typically is around 7-18 months. CMGR is described as assuming that a business’s growth rate happens at a constant rate during a particular time period. 

How to calculate Compound Monthly Growth Rate?

The Compound Monthly Growth Rate is also called the Month-over-Month growth of a metric and is given by:

CMGR = (Final Months Value / Initial Month Value) ^ (1 / Number of months) – 1

One of the most significant advantages of Compound Growth Rate is that the compounding effect is taken into consideration. Compound monthly growth rates (CMGR) are not affected by volatility and are the most pertinent in comparing different data series.

Advantages of tracking month-over-month growth rate

  • When used to the fullest, the Month-over-Month growth metric is used to accurately model a business’s current performance and predict future success. Month-over-month rate shows how far companies are concerned and committed to their future growth.
  • Month-over-Month growth metrics can impress investors to stick with the company for the long term. Investors become highly impressed if they notice a brand is showcasing potential growth and is proposing actionable insights to address an issue. 
  • The Month-over-Month metric gives a clear picture of what’s going on with the growth by comparing it to the preceding month. 
  • Growth rate helps businesses find new growth opportunities to pursue success and improve their tactics wherever required.
  • The beginning needs to be processed right to gain quality results at the end. Daily active users and business goals are the two metrics a business can define at the start to hit the correct targets and move in the right direction.
  • Understanding the retention rate is crucial for the long-term run of every business. One of the most significant indicators of a sustainable business is a retention rate that grows month-over-month.
  • Understanding the importance of measuring the metrics every month is vital so that the changes are made based on the problem that occurred.

Final Takeaways on Compound Monthly Growth Rate

One of the metrics representing business growth is Month-over-Month (MoM). A compound monthly growth rate omits the effect of volatility, smooths the historical data, and implies steady business growth. Even the best product and services need an honest and accurate growth rate. A false narrative of Month-over-Month metrics can hinder a company’s growth and lessen the long-term chances of success.

FAQs

1. How do you calculate the average monthly growth rate?

The formula for calculating the average monthly growth rate is given below:

Month-over-Month growth rate – Percent Change = (Month 1 – Month 2) / Month 1 * 100

To calculate MoM, we need to subtract the first month from the second month and divide that by the last month’s total. In order to get the answer in percentage, we need to multiply the result by 100.

2. Can you calculate the monthly CAGR?

Yes, monthly compound annual growth rate (CAGR) can be calculated, and the formula for the same is given as:

CAGR = (FV / PV) 1 / n-1

Where,

FV = The future value of the investment

PV= The present value of the investment

n = Number of years of investment

Other Startup KPI Metrics

Understanding and Maximizing Monthly Recurring Revenue

The ARR Advantage for Startups: Understanding and Calculating Annual Recurring Revenue

Using ACV to Measure the Success of Your Sales and Marketing Efforts

Total Contract Value – A Key Metric for Evaluating Business Performance

Why Customer Lifetime Value Is the Most Crucial Metric for Your Business

The Importance of Accurately Calculating Deferred Revenue

Maximizing User Retention: How to Calculate Daily Active Users

Calculating Your Company’s Total Addressable Market (TAM): A Step-by-Step Guide

Measuring Monthly Recurring Revenue: Expert Tips and Advice

Maximizing the Efficiency of Your Billing Process in Accounting

About the Author

Manjusha
Copywriter

Manjusha Karkera is an enthusiastic content marketer who has created numerous engaging and compelling writing pieces for various clients and companies over the years. She enjoys writing pithy content and copy on various sectors like fashion, beauty and wellness, sports, fitness, education, etc. Prior to Team upGrowth, she worked as a Marketing Communications Specialist. Her overall experience includes all forms of content writing and copywriting.

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