Tracking your business's growth is easier said than done. A rise in revenue or acquisition alone can be misleading — business leaders, stakeholders, and investors want to see evidence of stable, long-term growth. That's where month-over-month growth comes in.
Month-over-month (MoM) growth is a crucial performance indicator to measure your business’s success. It might seem complicated, but MoM growth is a tool all new business owners should get comfortable with. Below, we’ll cover what you need to know about MoM growth, including key metrics, how to calculate it, and how to interpret the results.
Why Is Month-Over-Month Growth Important?
Before we get into the details, let’s discuss why they matter. Calculating your month-over-month growth is a strategic accounting practice for startups. It provides a vital insight that helps you make informed decisions, track your progress, adjust your strategies, 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 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 growth figures.
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 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
So, what exactly does month-over-month growth measure? Growth looks a little different for businesses in every industry. You might be focused on growing your revenue, 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 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 increase in revenue. However, recurring revenue numbers alone might not paint a complete picture. Calculating your MoM revenue growth will show you the percentage increase in your revenue over time.
If your goal is to grow your customer base, you should use MoM growth to track your user acquisition. 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 your 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 is an important 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 MoM growth and ensure accurate results. For example, if you’re using the MoM growth formula to track your revenue 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 / previous 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 compounding monthly growth rate (CMGR) formula:
CMGR = (final month value / first month value) ˆ(1 / number of months) – 1
This 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 calculating MoM growth is easy, there is more to the process than just plugging numbers into a formula every month. Here’s a step-by-step guide to preparing, calculating, and using your MoM growth data:
- Collect data – Use automated accounting software and other tools to collect usable, accurate data throughout the month.
- 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.
- Analyze results over time – Collect your monthly MoM growth rates and create charts, graphs, and models to illustrate linear growth.
- Scale up – For a clearer picture of your business’s growth, scale your results up to CMGR, quarter-over-quarter growth, and year-over-year growth.
How To Interpret MoM Growth Results
Like any financial data, MoM growth 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.
You can also interpret your MoM growth data by comparing it to 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 trends. One of the most common mistakes business owners make when interpreting MoM growth 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.