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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.
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.
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.
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.
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
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