Month-over-month growth is a key metric for measuring the growth of your business.
To calculate Month-over-Month growth, subtract the first month from the second month and then divide that by the last month’s total. Multiply the result by 100 and you’re left with a percentage. The percentage is your Month-over-Month growth rate.
The formula for Month-over-Month growth rate is: Percent change = (Month 2 – Month 1) / Month 1 * 100
However, there’s much more to understanding your monthly growth than just extracting the most recent increase. It’s also important to understand the context around the MoM metric so you can use it effectively.
For example, knowing how to interpret and present Month-over-Month growth is particularly valuable for raising capital. Investors expect to see growth metrics and projections, and monthly breakdowns are appropriate when your company is very new.
In this article, I’ll provide:
- Every formula needed to calculate Month-over-Month growth.
- A demonstration of how to use monthly growth rates to make business projections.
- A Google Sheet with formulas pre-loaded that you can copy and use in your business.
What is Month-over-Month Growth?
Month-over-Month (MoM) is usually the smallest unit of measurement used to objectively capture the rate of growth in a business. This metric scales up to Quarter on Quarter and Year on Year growth tracking to give you an idea of rates of growth over varied time scales. It’s most commonly used for projections by early-stage companies, such as San Francisco startup founders.
The underlying MoM formula can be applied to everything from users to customers and, naturally, calculating revenue growth. Having a handle on your growth data is not just a task for the product and finance teams but should be applied across all of your business’ departments.
It’s important to note that MoM figures are pretty granular, and they should be used to ladder up to Quarterly and Yearly growth metrics for a more high-level view.
The top tip here is — don’t change your business model or even your marketing plan based on one month worth of growth data. Wait it out and look for a trend.
How do I calculate Month-over-Month growth?
Luckily, plug and play formulas exist for MoM calculations, so you don’t need to keep tapping your management accountant for help.
The formula version to get to a percentage output for month-specific data looks like this:
Percent increase (or decrease) = (Month 2 - Month 1) / Month 1 * 100
Or like this if you prefer a more minimalist approach:
x = (y - z) / z * 100
All you need to do is plug in your monthly data into the relevant variable in the formula and you are good to go.
How do I calculate Month-over-Month growth for multiple months?
When you’re working with multiple months of data, you’ll need to “flatten” your data to produce an overall Month-over-Month growth rate.
The most common metric here is CMGR, or compounded monthly growth rate. Basically, you’ll need to look at your starting month data and your ending month data, and calculate what percentage monthly increase would cause the starting figure to grow to the ending figure.
Note that this can be misleading because you’re ignoring variation in monthly growth rate and “flattening it out” to a single compounded figure each month.
This is useful if you’re seeing compounded growth (like a retirement account, which increases faster when you have more money).
It’s not useful if you’re seeing linear growth (like your paycheck, which is the same amount each month regardless of how much money you have stocked up). If your growth curve is linear, this is a misleading figure and should not be used for projecting future growth.
Let’s dig into some examples:
How do I calculate compound vs linear Month-over-Month growth?
There are a few ways to work out growth metrics. Like all things mathematical or specifically statistics related, the method you use to calculate the output can give you very different results, even when you are using the same inputs.
Simple or linear growth is constant and is measured from the same starting point or base input. So, if you had 10% growth a month off of a base of $1 million in sales in month 1, after month 2 your sales would be $1.1 million + $100,000. So, $1.2 million.
Each month that your sales increase, the ratio remains constant at $100,000 or 10% of the original base of $1 million. After 10 months at that rate of growth, your total sales would be $2 million.
Here’s an example:
|Base||Month 1||Month 2||Month 10|
Compound growth works like the compound interest on your Retirement Annuity.
As the old saying goes, it is “interest on your interest.”
Instead of the growth ratio remaining a constant percent of an original base as it does in simple growth, compound growth builds on the previous period’s final total. If you had 10% compound growth on a base of $1 million sales in month 1, in month 2 your sales total would also be around $1.2 million.
The big difference comes in after a few more months. At the 10-month mark, total sales with compound growth would be rounded off to $2.6 million vs $2 million of simple growth.
Here’s an example:
|Base||Month 1||Month 2||Month 10|
$600,000 is a big enough difference off of a relatively small base figure. The larger the base number, the bigger the difference between the two will be.
Exponential growth is the cumulative effects of compound growth over longer periods. Generally, it’s the process of doubling that underpins the concept of exponential growth. At a constant 10% annual compound growth rate, doubling your original base would take 7 years. After 14 years you will be at X4, at 21 years you will be at X8, and on it would go as long as you maintained the compound growth. This beats out simple growth patterns in the long run.
Compound growth flattens your monthly increases over a set time frame so that you get a consistent monthly growth rate. This may not be the reality of each month at a granular level where you could range from 10% to 32% depending on the month.
CMGR = Last Month/First Month ^ (1/ # of months difference) -1
Or for the minimalists:
CMGR = x/y ^ (1/z) -1
For exponential growth, or compound growth projected over longer time frames you can use this formula. Just add in your months and years to find your unique projection values based on your CMGR.
End Month Year = Start Month Year (1 + CMGR)<sup>x</sup> = y (1 + z)<sup>x</sup> =
- x = number of months in historical data used to calculate CMGR.
- y = your latest total figure
- z = your percentage compound growth as a decimal
What metrics compliment Month-over-Month Growth?
Tech companies — particularly those with recurring revenue like SaaS — have their own unique set of KPIs that compliment MoM figures. For good reason, the ones that usually get the most attention are:
- MRR and ARR (Monthly and Annually Recurring Revenue)
How much revenue will we earn from our current client base over the next time frame? This could be calculated by month, quarter, or year.
How many customers are canceling their accounts?
- LTV (Life Time Value)
How much revenue will a single customer generate before they unsubscribe?
- CAC (Customer Acquisition Cost)
What is the cost to onboard a single new customer?
- TROI (Time to Return on Investment)
How long will it take to get any return on our marketing spend?
Outside of the SaaS model, for any type of company looking for venture capital or angel investment, some overlapping metrics rely on or compliment MoM growth calculations.
- MRR laddering up to ARR (Monthly / Annually Recurring Revenue)
- Churn (Rate of Customer Loss)
- CAC (Customer Acquisition Cost)
Month-over-month growth can also be used to quantify team growth and staffing, for example by companies trying to decide if their staffing matches their ticket or customer growth. Companies commonly move to staff augmentation or similar scaled hiring practices in reaction to rapid changes in Month-over-Month growth rate.
Again, even if your business is not dependent on or looking for outside capital, tracking these metrics will allow you to iterate on your exponential business solutions, fix problem areas that are impacting positive growth and make more reliable projections.
Common errors when calculating and modeling Month-over-Month growth rates
The following errors are extremely common when evaluating monthly growth curves:
1. Absolute small numbers modeled as growth
It’s really easy to show good growth figures with small numbers. Any change will be relatively much more significant off of a small absolute base.
It can be tempting to use MoM growth in the early days of your business but try to avoid this. It’s better to be realistic and show absolute numbers. Instead of showing a 20% increase on 100 users, represent this as 20 new users in a month.
Once your business scales, you will probably struggle to maintain those initially artificially high growth figures and who wants to show that their growth rates are progressively decreasing?
If you have secured funding through venture capital or angel investors, or are trying to do so, it is a better strategy to only introduce growth figures once you have scaled past a certain size.
Until then stick to absolute figures so that you don’t set yourself up for a downward growth graph and some unnecessary explaining.
2. Irregular growth rates
So, we have already established that compound growth rates flatten your monthly growth over a set time frame into a constant percent. If you have large fluctuations in your monthly growth rates, you could choose to represent your compound growth rate as a range to be more accurate for reporting to investors or your board.
3. Describing decreasing linear growth rates as compound growth rates
The compound growth rate for the months in the table below would be 12%. That is a misleading figure because, at a monthly level, the growth rate is decreasing. It fell from 20% through 17% and 14%, to 12%. Don’t make the mistake of fluffing your growth figures, even if by accident. It always comes out in the end.
|Jan 2022||Feb 2022||Mar 2022||Apr 2022||May 2022|
If you find that your growth is decreasing in a linear way and is not exponential, use that insight to dig into why this is and find ways to build a better growth model.
4. Vanity Metrics
Don’t bother with vanity metrics that don’t matter to your investors, accounting team, or board. Depending on your business model, you will have different key KPIs that are directly related to revenue and growth. Keep your focus on the metrics that matter.
Growth figures for metrics like traffic or bounce rates might have some relevance at a top of funnel or a campaign level but don’t directly impact your business performance. Some metric mistakes to avoid are:
- Focusing on page views instead of active users just to show a larger number
- Reporting on newsletter subscribers rather than active subscribers
- Showing growth of total users instead of active users
5. Deriving Month-over-Month growth rate from CMGR
Unfortunately, this one doesn’t work in reverse. So, we know that you can input MoM data into your CMGR formula which then represents the growth that has taken place over a certain time frame and flattens the fluctuations between months.
But, if you are trying to work backward to derive the growth difference of a certain month or months based on your CMGR, chances are there will be a massive difference in what you get out and what the original individual MoM was.
Bonus: Common Excel Errors
Using Excel or Google Sheets is a great way to work out your growth rate quickly and easily. The errors to avoid are:
- Messy data. Make sure your formats are consistent.
- Accurate data. Check that you haven’t duplicated entries for example. Rubbish in is rubbish out.
- Check your formulas. These need to be correct or all your consistently formatted and accurate data will produce a useless output.
How to calculate Month-over-Month growth in Google Sheets
Just plug in your data to this google sheet. It has three formulas that you can use for:
- Month-over-Month Growth
- Compound Growth
- Exponential or projected Growth
- Month-over-Month metrics are usually one of several metrics presented to represent business growth.
- Month-over-Month growth rates can be used to project future performance, but beware of confusing Linear with Compounded growth.
- Month-over-Month growth should be presented in absolute terms early in product growth, to avoid over-representing growth rate when the project is small.
Irrespective of your business type, model, or stage tracking the growth of key KPIs is invaluable data to have access to. Being able to accurately represent your growth in relevant areas such as monthly active users, gross margin or revenue is a business basic, even for bootstrapped companies.
Apart from the investment potential that having these figures can unlock, they also give you the tools to zero in on problem areas so that you can optimize your business at every level. Exponential growth models rely on good data and Month-over-Month growth metrics are a solid starting point.