Financial Glossary
Compounded monthly growth rate (CMGR)
Compounded Monthly Growth Rate (CMGR) is the geometric mean monthly growth rate of a metric over a specified period, assuming each month's growth compounds on the prior month's base. Formula: CMGR = (Ending Value / Beginning Value)^(1 / number of months) - 1. It smooths out month-to-month volatility and provides a single summary rate that, if applied consistently, would reproduce the observed start-to-end change. CMGR differs from simple average monthly growth (which is an arithmetic mean) -- CMGR is lower when growth is uneven, which makes it a more conservative and accurate representation of actual compounding dynamics.
Problem & Application
Formula: CMGR = (Ending / Beginning)^(1/n) - 1. A reservation platform grows MRR from $80,000 in January to $160,000 in January of the following year (12 months later). CMGR = (160,000 / 80,000)^(1/12) - 1 = 2^(1/12) - 1 = approximately 5.95% per month. Simple average growth rate calculation: if growth was lumpy (large months in summer, slow in winter), the arithmetic average could be 7-8% per month -- misleading. CMGR of ~6% is honest because it accounts for compounding. For venture investors, early-stage SaaS with CMGR above 10% (roughly tripling annually) is considered strong. For campground reservation volume, CMGR applied to same-store booking counts separates genuine growth from onboarding of new properties. Tracking CMGR over rolling 6-month and 12-month windows detects whether growth is accelerating, decelerating, or plateauing -- a more useful diagnostic than single-month comparisons.
In Short
CMGR is a valuable metric for evaluating sustainable business expansion. Companies should track it alongside other financial indicators for informed decision-making.
How it works
Because CMGR is a geometric rate, it answers a specific question: what single, constant monthly rate would have turned the starting value into the ending value? You back into it by dividing ending by beginning, taking the root equal to the number of compounding periods (n = months elapsed, which is one less than the count of monthly data points), then subtracting one. The most common mistake is miscounting n: going from a January figure to the following January is 12 months of growth, not 13, and using the wrong n quietly inflates or deflates the rate. CMGR is best used for early-stage, monthly-reported metrics like MRR, bookings, or active customers, where a clean month-over-month rate is more meaningful than an annualized CAGR.
Worked example: a campground's shoulder-season booking revenue
An RV park nets $45,000 in online booking revenue in January and $72,000 by December, 11 months later. The owner wants one honest monthly growth figure, not a misleading average skewed by the summer peak. Apply the formula: CMGR = (72,000 / 45,000)^(1/11) - 1 = 1.6^(1/11) - 1 ≈ 4.37% per month. Sanity-check it: $45,000 compounded at 4.37% for 11 months returns roughly $71,960 — back to the December figure. Note that n is 11, not 12, because there are 11 months of growth between January and December. A simple arithmetic average of the month-to-month percentage changes would read higher (say 5–6%) because the big summer jumps dominate the mean. The 4.37% CMGR is the figure to report to a lender or investor, since it reflects the true compounding path rather than the loud peak months.
Frequently asked
What is a good CMGR for a small business?
There is no universal benchmark; it depends on stage and metric. Early-stage startups raising venture capital often target 10–20% CMGR on MRR, while a profitable, established SMB may grow at 1–3% per month. The right comparison is your own trend over time and direct competitors, not a generic figure.
How is CMGR different from CAGR?
They use the same geometric formula but different time units. CMGR measures the compounding rate per month; CAGR measures it per year. CMGR suits early-stage metrics reported monthly, like MRR or bookings, where month-level detail matters. CAGR is better for multi-year trends. You can convert: annualized rate = (1 + CMGR)^12 - 1.
Why is CMGR lower than the average monthly growth rate?
Because CMGR is a geometric mean and the simple average is an arithmetic mean. When growth is uneven — large jumps in some months, flat in others — the arithmetic average is pulled up by the big months, overstating typical growth. The geometric CMGR accounts for compounding and reproduces the actual start-to-end result, making it the more conservative and accurate figure.