Month-Over-Month Growth: How to Calculate & Avoid Common Mistakes

Originally published on August 21, 2018

Tracking month-over-month (MoM) growth helps you understand whether you have a strong product-market fit. It’s among the first trends investors look for when deciding whether to fund a company, and it’s also one of the hardest metric outcomes to achieve.

Sustained exponential growth is essentially the golden standard of growth marketing. It reflects your company’s ability to adapt and scale. Investors value a strong month-over-month growth rate because it shows that your organization can maintain growth and momentum over time.

Growth is rarely linear, so understanding the nuances of MoM increases and decreases—from what drives them to changing fluctuations—is the key to maintaining and increasing it. And the first step to understanding growth is measuring it accurately.

What is month-over-month growth?

Month-over-month growth shows the value change of key metrics as a percentage of the previous month’s value. Teams use it to measure growth in revenue, active users, number of subscriptions, and more. If you’re working on a digital product, like a SaaS product or a website, you probably focus on MoM active user growth—it’s the most common way to assess your product or company’s traction and success.

Absolute numbers and MoM growth are not interchangeable; they speak to two different cases. If you walk into a room and announce that you’re acquiring 500 monthly active users (MAU) a month—a linear growth trend—don’t expect to turn many heads, and don’t be surprised if investor meetings are hard to pin down.

This is where the compound monthly growth rate (CMGR) comes in.

What is compound monthly growth?

Your CMGR describes your growth rate over a given period, assuming your growth happens at a constant rate every month during that time.

If you share that your compound monthly growth rate is 20%, that’s much more compelling to investors and other stakeholders than absolute numbers. A 20% compound monthly increase is exponential. Even if you started with a modest 100 users in January 2021, a sustained 20% monthly growth rate puts you in the realm of over half a million users by December 2025. That is how you prove the potential value of your company, and that is the magic of month-over-month growth.

How to calculate your MoM growth rate

To calculate month-over-month growth for a single month, simply take the difference between the current month’s total number of users and last month’s total number of users and then divide that by last month’s total:

MoM Growth Rate = ([Current Month Users - Previous Month Users] / Previous Month Users) × 100

You can use the same formula to calculate your week-over-week growth or year-over-year growth.

Now, say you want to calculate your MoM growth rate over six months instead of your growth rate for one month. That’s when you want to calculate your compound monthly growth rate.

Compound monthly growth rate formula

Tracking CMGR gives you a clear understanding of how your growth has compounded over time, helping you measure long-term performance more accurately.

To calculate CMGR, plug the numbers above into the following formula manually or use a tool like Excel:

CMGR = ([Last Month Value / First Month Value] (1 / # of months difference)) - 1

Example of the CMGR formula in action

Imagine that your active users were growing as follows:

You’ll plug those numbers into the CMGR formula.

In this case, the calculation would be: [(248 / 100) (1 / 5)] - 1 = 0.2 (20%)

Notice that your CMGR is 20% over the entire period, even though the percentage change varies from month to month. For example, the MoM growth rate from January to February is only 10%, and then it jumps to 36% from February to March. With CMGR, you’re aiming to understand the average growth from January to June without fixating on short-term fluctuations.

Three common mistakes to avoid with MoM growth

When building out your growth model, it’s unfortunately too easy to make mistakes. While the most common pitfalls are small, they can quickly add up and snowball into existential problems that are much harder to fix down the line. Here are the top three errors people make in their growth data.

1. Small absolute numbers modeled as MoM growth

Huge MoM growth is much easier to achieve during the early stage of a business when numbers are smaller. That means that it’s both easier to construct a narrative around your MoM growth for small numbers and harder to maintain that rate as your business grows.

In this example, you’re seeing 20% growth every month from January 2024 to June 2024. But in absolute numbers, you’re only talking about growth from 100 active users to 249 active users.

The problem is that this percentage growth doesn’t scale; you can get from 100 to 120 monthly active users in the first month with a single press mention. But to get the same 20% percentage increase from 1,000,000 to 1,200,000 active users in a month, you need a powerful growth engine that drives both customer acquisition and retention.

2. Inconsistent growth modeled as MoM growth

Growth can be unpredictable, with external factors like seasonality and market changes impacting a company’s growth rates. You can double your MAU in one month, and the next month, you can stay totally flat. If that’s happening, it’s a mistake to flatten your fluctuating growth by modeling it as a consistent CMGR.

Let’s imagine here that you have a 20% CMGR, but you’re only in the vicinity of 20% during one period (from May to June). Outside of that, your team is seeing wild fluctuations—between 2% growth and 82% growth.

While the growth rate is all over the place, the data is still telling you something: You haven’t built a consistent growth engine for your app. And you may not understand why your month-to-month growth rate fluctuates so wildly.

3. Linear growth modeled as MoM growth

Let’s say your business is growing, and it’s growing consistently. While it’s important to celebrate the wins, don’t mistake linear growth for exponential growth.

If you’ve doubled from 10,000 to 20,000 users in six months, you have a 15% growth rate. However, an issue pops up if you look closer: Your growth rate appears to be decelerating.

Decelerating growth as your numbers get bigger signals that your growth isn’t exponential—it’s probably more linear. Here, it’s more accurate to stick to absolutes by saying that we’re adding 2,000 active users per month instead of saying that we’re growing 15% MoM.

How short-term tracking leads to long-term growth

Month-over-month growth is the gift that keeps on giving when you use it to accurately model short-term growth while also benchmarking and forecasting long-term success. It sends the message that you know what you’re doing and that you’re committed to the long-term future of your company.

Earns the respect of your investors

The relationship between investors and startups is typically long-term, so stay honest and accountable. This applies to growth data: If you misrepresent your MoM—even accidentally—you can tarnish your image in the eyes of some of your most important stakeholders.

How you present your growth data is an opportunity to earn the respect of investors, regardless of what it is. Even if your growth data isn’t skyrocketing at a rate of 35% MoM, you can impress investors by digging into why that’s the case and proposing actionable insights to address the issue.

Clarifies your long-term vision

Month-over-month provides just a snapshot of what’s going on with growth by looking into what happened this month compared to last. It does not, however, tell the full story. Remember to zoom out once in a while to tie monthly trends back to your company’s key performance indicators (KPIs) and long-term vision. This can help you stay goal-oriented by identifying whether you’re on track to meet larger goals, such as YoY benchmarks and quarterly or yearly KPIs.

Helps you improve over time

While flat or downward growth rates might seem disheartening, remember there’s value in all of your data—even when it’s not the data you want to see. Even for the unicorns out there, exponential growth doesn’t happen overnight, and certainly not on its own. To aggressively pursue success, embrace the practice of being brutally honest with yourself and listen to what your growth rates are telling you. For example, monitor how marketing campaigns influence growth rates to see if your efforts are driving the results you expect or if adjustments are needed. Chances are you’ll find opportunities to improve.

Drive better forecasting by focusing on inputs rather than outputs

The quality of your output will only be as strong as your input. Rather than focusing all your energy on the numbers you want to see in the end, commit to getting the beginning processes right.

It gets much harder to accurately interpret important product metrics such as MoM when you’re consistently sifting through low-quality data. Before you get too far into the weeds of running any analyses, first, you’ll create a robust data system—your minimum viable instrumentation (MVI). This will help you identify the specific data processes to follow to reach your business and analytics goals.

Start by defining two things:

1. Important terms, such as daily active users
2. Your specific business goals

Pinpoint which events you want to measure by carefully considering the paths along the customer journey that will steer your customers in the right direction for hitting these targets (such as conversion). These are the touchpoints you want to track. Remember, simple is better: Focus only on what matters to reach your goals and eliminate the rest.

Here are five key principles to follow to avoid a serious data-validation problem on your team:

1. Avoid tracking everything. Noisy data is messy and almost impossible to keep track of. Instead, consistently track between 20 and 200 events.
2. Stay organized. Keep your data exceptionally clean and easy for any team member to understand.
3. Define the data from day one. Many variables = mass confusion. Consider creating documentation to explain your data structure.
4. Understand how user identification works within your analytics platform. Have a system in place that can recognize anonymous users by their device or other credentials to avoid false repeat “new user” entries. For example, Amplitude addresses this problem with the “amplitude_ID” identifier, which catches repeat users even if they’re anonymous.
5. Autoformat variables such as numbers, dates, international characters, and geocoding values so they’re consistent and can be accurately analyzed.

Track your month-over-month growth to focus on long-term success

With accurate tracking, you gain valuable insights about growing your product. You’ll visualize and understand your product’s momentum in the market so you can make informed decisions to support sustained growth.

Consistently monitoring growth metrics empowers your team to understand better what drives your product’s success, pinpoint areas for improvement, and build a growth strategy that investors buy into.

If you create an honest growth model and come out empty-handed, don’t be discouraged. Be patient, be honest, and use whatever growth data you have to find opportunities that will create an engine for sustained exponential growth.