Month over Month (MoM) Growth Rate

What is Month over Month (MoM) Growth Rate?

Have you ever wondered how businesses track their progress from one month to the next? That’s where Month over Month (MoM) Growth Rate comes in. It’s a simple way to measure how much something grows or shrinks compared to the previous month.

Definition

Month over Month (MoM) Growth Rate is a business metric that measures the percentage change in a specific value between the current month and the previous month.

Why is Month over Month (MoM) Growth Important?

Month over Month growth is one of the most valuable metrics for businesses because it helps you spot trends quickly and make smart decisions.

Here’s why it matters:

• Quick Problem Detection: MoM growth is like an early warning system. If your numbers start dropping, you’ll know right away. For example, if your online store’s sales drop 15% from last month, you can investigate and fix problems before they get worse.
• Better Planning: Tracking MoM growth helps you prepare for future trends. If your business grows 10% every month during summer, you can hire extra help or stock more inventory before the busy season starts.
• Measuring Marketing Success: MoM growth reveals the impact of your marketing efforts. For example, if a new ad campaign leads to a 25% increase in sales, it indicates your marketing strategy is effective.
• Investor and Bank Relations: Banks and investors love seeing steady MoM growth. Consistent monthly growth, even if small, demonstrates business health and can improve your chances of securing funding.
• Competitive Edge: MoM growth helps you benchmark against competitors. If your customer base grows 5% monthly while the industry average is 3%, you’re outperforming your peers.
• Goal Setting: Knowing your typical monthly growth rate makes setting realistic goals easier. For example, if you typically grow 8% MoM, aiming for 10% is both ambitious and achievable.

The simplicity of MoM growth makes it ideal for quick decision-making and staying on track. However, it’s best used alongside other metrics for a complete view of your business health.

How to Calculate Month-over-Month Growth Rate

The formula for calculating Month-over-Month Growth Rate is:

MoM Growth Rate = ((Current Month Value – Previous Month Value) / Previous Month Value) × 100

Example Calculation

If your monthly revenue was:

• March: $10,000 (Previous Month)
• April: $12,000 (Current Month)

Calculation:

($12,000 – $10,000) = $2,000

$2,000 ÷ $10,000 = 0.2

0.2 × 100 = 20%

Your MoM growth rate is 20%.

Handling Negative Growth

The same formula applies for negative growth. For example:

• June: $15,000 (Previous Month)
• July: $12,000 (Current Month)

Calculation:

($12,000 – $15,000) = -$3,000

-$3,000 ÷ $15,000 = -0.2

-0.2 × 100 = -20%

Your MoM growth rate is -20%.

Quick Tips

• Always use the previous month as your baseline.
• Convert to percentage by multiplying by 100.
• Include the negative sign for declining growth.
• Round to one or two decimal places for cleaner reporting.

MoM Rate vs Compounded Monthly Growth Rate (CMGR)

MoM Growth Rate

Measures growth between two consecutive months. It’s like a snapshot of your business growth.

Compounded Monthly Growth Rate (CMGR)

Measures average monthly growth over a longer period, smoothing out fluctuations. The formula is:

CMGR = (Final Value / Starting Value)^(1 / Number of Months) – 1

Key Differences:

• MoM Growth Rate: Short-term focus, can vary widely month to month, good for operational decisions.
• CMGR: Long-term focus, smooths fluctuations, better for strategic planning and investor presentations.

Who Should Use Month over Month (MoM) Growth Rate?

Startups and New Businesses

• Perfect for tracking early growth stages.
• Helps prove the business model is working.
• Essential for showing progress to investors.
• Useful for making quick adjustments to business strategy.

Online Businesses and E-commerce

• Track website traffic changes.
• Monitor online sales performance.
• Measure user signup rates.
• Evaluate marketing campaign success.
• Analyze customer engagement metrics.

SaaS Companies

• Monitor subscription growth.
• Track customer churn rate.
• Measure revenue increases.
• Evaluate feature adoption rates.
• Monitor user activity levels.

Small Business Owners

• Track monthly sales.
• Monitor customer growth.
• Evaluate seasonal patterns.
• Manage inventory needs.
• Plan staffing requirements.

Marketing Teams

• Measure campaign effectiveness.
• Track lead generation.
• Monitor social media growth.
• Evaluate content performance.
• Assess email marketing results.

Sales Teams

• Track monthly sales targets.
• Monitor deal closure rates.
• Measure pipeline growth.
• Evaluate team performance.
• Plan commission structures.

Product Managers

• Monitor product adoption.
• Track feature usage.
• Measure user engagement.
• Evaluate pricing changes.
• Plan product updates.

Who Should Not Use Month over Month (MoM) Growth Rate?

Highly Seasonal Businesses

Examples include ice cream shops, holiday retailers, and ski resorts. For these businesses, MoM can be misleading due to natural seasonal peaks. Year-over-Year (YoY) comparisons are more appropriate.

Long Sales Cycle Businesses

Examples include real estate developers, enterprise software sales, and large consulting firms. MoM growth isn’t suitable due to long deal cycles showing little or no monthly changes.

Project-Based Businesses

Examples include construction companies, film studios, and event planners. Revenue is tied to project completion, making MoM comparisons irrelevant.

Early-Stage Startups (First 3-6 Months)

Starting from zero can produce misleading growth rates. For instance, going from 2 to 4 customers shows 100% growth but lacks meaningful scale.

Businesses with Irregular Purchase Patterns

Examples include luxury car dealerships and industrial equipment sellers. Big-ticket sales create dramatic swings, making MoM an unreliable metric.

What is a Good MoM Growth Rate for Startups?

Early-Stage Startups (First 1-2 Years)

• Excellent: 15-25% or higher – Shows rapid scaling, often requires significant funding.
• Good: 10-15% – Strong growth, sustainable with moderate funding.
• Acceptable: 5-10% – Steady growth, may require adjustments.
• Concerning: Below 5% – Indicates potential market or product issues.

Later-Stage Startups (2+ Years)

• Excellent: 10-15% – Indicates continued market expansion and scalability.
• Good: 5-10% – Healthy, sustainable growth rate.
• Acceptable: 3-5% – Normal for maturing startups, focus shifts to profitability.

Remember: The “right” growth rate depends on your business model, market size, funding situation, and long-term goals. Sustainable growth that leads to profitability often outweighs unsustainable rapid growth.