Month over month growth: Definition, metrics, and formula

Month over month growth measures the monthly rate of change in a given metric, such as sales or user base. It provides insight into your performance over time, which can help inform short-term decisions.

Let’s explore what makes month over month growth so valuable in strategic planning, what key metrics to apply it to, and how to calculate it. We’ll also discuss ways to interpret your results and translate them into actionable next steps.

Why is month-over-month growth important?

Before we get into the details, let’s discuss why they matter. Calculating your month-over-month (MoM) growth is a strategic accounting practice for startups. 

It provides a vital insight that helps you make informed decisions, track your progress, adjust your forecasts, and stay accountable to partners and investors.

Like other tools in your financial data system, MoM growth helps new businesses stay on track. One reason many startups fail to scale is a lack of strategic systems for growth. 

With accurate MoM growth data, business owners can set realistic expectations, develop strategies, and make sure all stakeholders are on the same page. In short, it takes the guesswork out of planning ahead.

That said, some business owners make the mistake of relying on inaccurate MoM growth data to inform their decision-making. To make sure your data is as accurate as possible, use automated tools, calculate your MoM growth every month, and analyze results over a long time period. 

Scaling your MoM growth data up to quarter-over-quarter or year-over-year growth data will give you a bird’s-eye-view of your business’s long-term growth.

Absolute growth vs. month-over-month growth

When setting goals for your business’s growth, your first instinct might be to use absolute numbers.

For example, say you’re tracking your user acquisition each month. Adding 5,000 new users per month is an absolute growth figure. However, if you aim for 5% growth each month — a MoM growth figure — you’re prioritizing compounding growth. 

That means growing your user base by 5% each consecutive month rather than a set number. This figure is more attractive to potential investors and sets you up for exponential growth over time.

Key metrics for month-over-month growth

You can measure the month-over-month growth rate in any metric. For example, in economic analysis, it’s often applied to gross domestic product and inflation. However, it’s most useful to businesses when applied to your industry’s key performance indicators.

You might be focused on growing your sales, acquiring new customers, expanding your reach, or bringing more traffic to your website — or a combination of the above.

These goals can all be tracked using MoM growth. Here are a few key metrics you might use to measure your business’s monthly growth rate.

Revenue growth

Revenue growth is not the only metric that shows how your business is growing, but it is an important one. Your finance teams or business budgeting software should be tracking your quarterly or monthly recurring revenue. 

However, recurring revenue numbers alone might not paint a complete picture. Calculating your MoM revenue growth will show you the percentage change in your revenue over time.

User acquisition

If your goal is to grow your user base while keeping your average customer acquisition cost down, you should use your MoM growth rate to track your progress. 

This goes beyond tracking customer growth — it shows the rate at which your business is acquiring new customers so you can plan for future expansion or look into strategies to boost that rate.

Absolute growth rates for user acquisition don’t always provide a clear picture. 

For example, you might gain more users in a single month due to a seasonal trend, economic change, or other external factor, giving you a false impression of sustainable growth. 

MoM growth rates for user acquisition provide a more consistent view by looking at your average percentage growth over several months.

Customer churn rate

MoM growth can also be used to calculate declining rates. Your customer churn rate, or customer attrition rate, shows how many customers you lose in a given period. 

Calculating your MoM customer churn rate will help you troubleshoot your customer retention strategy. It also gives you an idea of how many new customers you need to acquire to maintain consistent growth.

Website traffic

Combined with your conversion rate, website traffic is an important growth metric that shows how effective your digital marketing strategies are. 

If you work with a digital marketing team, they may calculate your MoM traffic growth to determine how your online engagement is growing.

Social media engagement

Similar to website traffic, social media engagement is a crucial indicator for your digital marketing. 

Calculate MoM growth in engagement rates before and after a social media marketing campaign to see how effective it was. 

You should use this tool in combination with other key metrics, such as website traffic and user acquisition, to get a clear picture of your business’s reach and shape marketing strategies.

How to calculate month-over-month growth

Calculating month-over-month growth is a simple matter of plugging the right data into a growth rate formula.

Before you use this formula, make sure you’re starting with accurate numbers to avoid dirty data. Using software programs and automated tools will take the guesswork out of calculating your MoM growth rate and ensure accurate results. 

For example, if you’re using the MoM growth formula to track your sales growth, you’ll get precise numbers from your automated financial reporting software.

The month over month growth formula

There are a few basic formulas to calculate MoM growth. The standard formula is:

MoM growth = (current month value / prior month value) – 1

You can also subtract the current value from the previous value and then divide the result by the previous value to get the same result. That formula is:

MoM growth = (current month value – previous month value) / (previous month value)  

Either version will give you the percentage output for a single month. Remember, you shouldn’t rely on a single month’s results alone to inform your strategies. Track each month’s results, create growth models, and scale your data for a clearer picture.  

If you want to calculate the average month-over-month growth rate over a period of time, use the compound monthly growth rate (CMGR) formula:

CMGR = (final month value / first month value) ˆ(1 / number of months) – 1

The compounded monthly growth rate formula is slightly more complicated but provides a long-term value for your growth over several months rather than one month at a time.

Step-by-step guide to calculating MoM growth

Although MoM calculations are easy, there is more to the process than plugging numbers into a formula every month. Here’s a step-by-step guide to preparing, calculating, and using your MoM growth rate data:

1. Collect data – Use automated accounting software and other tools to collect usable, accurate data throughout the month.
2. Calculate results – Calculate your MoM growth once a month. Make sure the data you’re using covers the exact same number of days each month for accurate results.
3. Analyze results over time – Collect your monthly MoM growth rates and create charts, graphs, and models to illustrate linear growth.
4. Scale up – For a clearer picture of your business’s long-term growth, scale your results up to CMGR and compound annual growth rate (CAGR).

How to interpret MoM growth results

Like any financial data, MoM change results aren’t helpful on their own. They need to be scaled up, analyzed, and interpreted.

One way to do that is with data visualization. Use your accounting software or another program to create visual models of your MoM data. 

This will allow you to analyze your growth curve and present it to stakeholders in an easy-to-interpret format.

Another useful form of MoM analysis is to compare your results to your competitors' data. 

However, take caution when doing this — comparing MoM growth across industries, between companies of different sizes, and over short time periods can cause misleading results. 

You should only compare long-term MoM growth between startups in your industry.

It’s also important to be aware of seasonal fluctuations. One of the most common mistakes business owners make when interpreting MoM metric results is analyzing growth over one or two months. 

Growth in your revenue, traffic, user acquisition, and other metrics will fluctuate throughout the year. 

That’s why it’s important to consistently calculate MoM growth and analyze data over a long period of time. Put simply, the more MoM data you have, the more accurate your analyses will be.

Use MoM growth data for informed decision-making

Month-over-month growth is just one metric that will help inform your decision-making. If you’re using it correctly, MoM growth data can provide a clear picture of your revenue growth, customer acquisition, marketing success, and more. 

You can use it to troubleshoot problems, present to potential investors, and create new growth strategies.

Make sure you’re calculating your MoM growth correctly and always using accurate data. 

The right financial operations platform will take the guesswork out of collecting and interpreting your MoM growth so you can make informed, data-backed decisions for your startup.