Compounded Monthly Growth Rate (CMGR)

What is CMGR?

Compounded Monthly Growth Rate (CMGR) measures your consistent monthly growth rate, assuming growth compounds each month. It’s particularly useful for startups and SaaS companies to understand their true growth pace.

Why CMGR Matters

• Shows consistent growth pace
• Better than simple averages (see explanations further in the article)
• Accounts for compounding effect
• Helps predict future growth
• Standard metric for investors

How to Calculate CMGR

The Formula for CMGR

 

The same formula but in a simpler, more practical way:

CMGR = (End Value ÷ Start Value)^(1/n) – 1

Explanation:

• End Value: The final value of the metric you’re measuring (e.g., revenue, users).
• Start Value: The initial value of the metric.
• n: The number of months over which the growth occurred.
• CMGR: The average monthly growth rate as a percentage.

Example

Starting users: 1,000

Ending users (after 6 months): 2,000

CMGR = (2,000 ÷ 1,000)^(1/6) – 1

CMGR = (2)^(0.167) – 1

CMGR = 1.122 – 1

CMGR = 0.122 or 12.2%

This means you grew by approximately 12.2% each month.

CMGR vs Other Growth Metrics

CMGR vs Simple Growth Rate

Let’s understand why CMGR is more accurate through an example:

Imagine a startup’s monthly user numbers:

• Month 1: 100 users
• Month 12: 200 users

Simple Average Calculation:

• Total growth: 100 users
• Number of months: 12
• Average = 100 ÷ 12 = 8.33 users per month

This suggests 8.33% monthly growth.

CMGR Calculation:

CMGR = (200 ÷ 100)^(1/12) – 1 = 5.9%

The simple average is misleading because it ignores compounding. In reality, each month’s growth happens on a larger base than the previous month. CMGR accounts for this compounding effect, giving you the actual consistent growth rate needed to get from your starting point to your ending point.

CMGR Advantages:

• Accounts for compounding
• More accurate long-term
• Better for comparisons
• Reflects real growth dynamics

CMGR vs Year-over-Year

• Year-over-Year: Shows annual change, ignores monthly patterns, good for seasonal businesses
• CMGR: Shows monthly momentum, better for rapid growth tracking, more detailed view

Using CMGR in Business

1. Goal Setting

Example:

• Current users: 1,000
• Goal: 10,000 users in 12 months
• Required CMGR:
  CMGR = (10,000 ÷ 1,000)^(1/12) – 1 = 20%

2. Performance Tracking

• Track CMGR for:
  • User growth
  • Revenue growth
  • Customer acquisition
  • Feature adoption
  • Market penetration

3. Resource Planning

Use CMGR to plan:

• Server capacity
• Support staff
• Marketing budget
• Development resources
• Cash requirements

Industry Benchmarks

Early Stage Startups

• Good: 15-25% CMGR
• Great: 25-35% CMGR
• Exceptional: >35% CMGR

Established SaaS

• Good: 5-10% CMGR
• Great: 10-15% CMGR
• Exceptional: >15% CMGR

Common Mistakes

1. Wrong Time Period:
   • Bad: Using irregular periods
   • Good: Using consistent monthly intervals
2. Ignoring Context:
   • Bad: Comparing different growth stages
   • Good: Comparing similar business phases
3. Over-extrapolation:
   • Bad: Assuming constant CMGR forever
   • Good: Using realistic growth periods

CMGR Best Practices

1. Regular Monitoring

• Calculate monthly
• Track trends
• Compare periods
• Adjust strategies

2. Segmented Analysis By

• Product line
• Customer type
• Geography
• Acquisition channel

3. Realistic Planning

• Consider market size
• Account for seasonality
• Factor in competition
• Plan for plateaus