What is CMGR?
Compound Monthly Growth Rate (CMGR) is a metric used to measure the month-over-month growth rate of a value, with the implicit assumption that growth compounds each month.
CMGR is a common metric used to analyze and compare the growth of various metrics such as revenue, user base, or market share.
How to Calculate Compound Monthly Growth Rate (CMGR)
CMGR—or Compound Monthly Growth Rate—is a measure of your business’s growth momentum, offering insights into strategy effectiveness and operational efficiency.
The practical use-case of CMGR stems from the fact that the growth metric reflects the consistent growth trajectory on a monthly basis, where fluctuations that occurred over a longer period are normalized into a monthly growth rate (“smoothened out”).
Therefore, CMGR represents a standardized growth rate that can be compared across different time periods or to comparable companies that operate in the same (or an adjacent) industry.
Unlike a gross growth metric, the CMGR accounts for the effects of compounding over time, thereby causing the implied growth to be more reliable.
CMGR is calculated by taking the nth root of the total growth rate over a period, where n is the number of months.
The step-by-step process of calculating the compound monthly growth rate (CMGR) is as follows:
- Step 1 ➝ Collect the Beginning and Ending Value (and the Number of Months Between the Two Values)
- Step 2 ➝ Divide the Ending Value by the Beginning Value
- Step 3 ➝ Calculate the nth Root of the Resulting Figure (n = Number of Months)
- Step 4 ➝ Subtract 1 from the Result
- Step 5 ➝ Convert the CMGR from Decimal Notation to Percentage Form (Multiply by 100)
CMGR Formula
The formula to calculate CMGR is equal to the ending value divided by the beginning value raised to the power of 1/n minus 1.
Where:
- Ending Value ➝ Ending Value of the Metric
- Beginning Value ➝ Initial Value of the Metric
- n ➝ Number of Months Between the Beginning and Ending Values
CMGR vs. CAGR: What is the Difference?
CMGR and CAGR serve different purposes and are suited to different contexts. CMGR provides a detailed, short-term view ideal for dynamic environments requiring frequent performance assessments.
In contrast, CAGR offers a stable, long-term perspective crucial for strategic planning and evaluating sustained growth.
- Compound Monthly Growth Rate (CMGR) ➝ CMGR focuses on the average monthly growth rate, providing insights over shorter periods, typically within a year. The metric offers a detailed, granular view of growth dynamics, making it suitable for tracking monthly performance trends and capturing rapid changes within a shorter timeframe. CMGR is particularly useful for short-term analysis and monthly projections, allowing businesses to make timely operational decisions based on recent performance data. It is ideal for sectors where immediate performance feedback is crucial, such as marketing campaigns or product launches. CMGR uses months as the unit of time, making it sensitive to monthly changes and suitable for short-term performance tracking. The use of months as the unit of time makes it beneficial for analyzing periods shorter than a year and understanding intra-annual performance patterns.
- Compound Annual Growth Rate (CAGR) ➝ CAGR calculates the average annual growth rate, offering a long-term perspective that smooths out short-term volatility and highlights sustained trends over several years. The metric provides a broader, year-over-year view that is less affected by monthly variations, making it more appropriate for assessing long-term growth and stability in industries like real estate or manufacturing. CAGR is widely used for long-term investment evaluation and strategic planning, helping stakeholders understand the overall growth trajectory and make informed decisions based on multi-year performance. It uses years as the unit of time, providing a stable measure of growth over extended periods. The annual perspective helps in evaluating the sustainability and long-term potential of investments or business strategies. The ability of CAGR to smooth out short-term fluctuations offers a stable and reliable measure of long-term growth, making it a preferred metric for strategic planning and evaluating sustained growth.
CMGR Calculator — Excel Template
We’ll now move to a modeling exercise, which you can access by filling out the form below.
SaaS CMGR Calculation Example
Suppose we’re tasked with calculating the compound monthly growth rate (CMGR) of a SaaS company given the following monthly recurring revenue (MRR) financial data.
| CMGR Roll-Forward | ||||||
|---|---|---|---|---|---|---|
| ($ in thousands) | Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 |
| Beginning MRR | $500 | $520 | $545 | $559 | $587 | $622 |
| (+) Net New MRR | $20 | $25 | $14 | $28 | $35 | $62 |
| Ending MRR | $520 | $545 | $559 | $587 | $622 | $684 |
| % MRR Growth | N/A | 4.8% | 2.6% | 5.0% | 6.0% | 10.0% |
The CMGR is a proxy for the normalized monthly growth rate of the SaaS company’s MRR across the stated time frame.
By smoothing out the short-term fluctuations each month, the CMGR reflects a more consistent growth pattern that can be used to analyze the growth profile of the SaaS company to understand its historical growth trajectory, as well as for purposes pertaining to forecasting.
The first step to calculating the CMGR is to identify the initial and ending values of the SaaS company’s MRR.
For our hypothetical scenario, the initial monthly recurring revenue (MRR) is $500k at the start of Month 1, and the ending MRR after six months is $684k.
In the next step, we’ll count the number of months in the period, which is 6 months in total.
The CMGR is calculated by dividing the ending MRR by the initial MRR and then raising the result to 1/n.
Once complete, the final step is to subtract one from the resulting figure to arrive at a compound monthly growth rate of 5.4%.
- Compound Monthly Growth Rate (CMGR) = [($684k ÷ $500k) ÷ 6 Months]^(1/6) – 1 = 5.4%
