Software Growth

CMGR (Compound monthly growth rate)

CMGR is the steady monthly growth rate that would take a metric like MRR from its starting value to its ending value over a period, with compounding.

Monthly growth numbers bounce around. One month is up 14%, the next is up 2%. CMGR smooths that into a single figure: the constant monthly rate that would get you from where you started to where you ended. It is the fair way to compare growth across periods of different length.

How to calculate CMGR

Drivetrain describes it as ending value divided by beginning value, raised to the power of one over the number of months, minus one.

Here n is the number of months between the two readings. Say MRR goes from $10,000 to $15,000 over 6 months. The ratio is 1.5. Raised to the 1/6 power it is about 1.0699, so CMGR is roughly 7.0% a month. Check: 10,000 x 1.07^6 is about $15,007.

The same approach over 12 months, $20,000 to $32,000, gives 1.6^(1/12), or about 4.0% a month.

Why not just average the months

The simple average of monthly growth rates ignores compounding and is distorted by one huge or tiny month. Drivetrain notes CMGR accounts for compounding and smooths short-term fluctuations. It depends only on the endpoints, so a messy path gives the same answer as a smooth one. That is both its strength and its weakness.

Using CMGR

  • Compare periods. A 6-month and a 24-month stretch are comparable once both are expressed per month.
  • Project forward. At 7% CMGR, MRR doubles roughly every 10 months (rule of 72 gives about 10.3). That is a projection of the past repeating, not a forecast.
  • Convert to annual. Raise (1 + CMGR) to the 12th power. A 4% monthly rate is about 60% a year.

Limits

  • It ignores the path. A year of flat revenue followed by a huge last month can give the same CMGR as steady growth.
  • Pick the endpoints carefully. Starting from a depressed month or ending on a spike flatters the result. Show the window.
  • It is backward-looking. Growth rates generally fall as the base grows, so a past rate rarely persists.
  • It assumes the starting value is not zero, and is unreliable from tiny bases, where $200 to $400 is 100% growth in a month.

Small SaaS angle

For a young product, CMGR over 3 to 6 months is a better read on momentum than any single month. Pair it with net new MRR in dollars, because a high percentage from a small base says little. Compare it against your plan: if you need $10,000 MRR in 12 months and you are at $3,000, you need about 10.5% a month, since (10,000/3,000)^(1/12) is about 1.105.

Sources

Back to the SaaS glossary