The smallest unit of measurement to accurately reflect a company’s rate of growth is month-over-month (MoM). We can understand rates of increase over a range of time intervals by scaling up this statistic to Quarter on Quarter and Year on Year growth tracking. Early-stage businesses, like San Francisco startup founders, most frequently use it for predictions.
Month over Month Calculation in Power BI using DAX
Importance of month-over-month growth metrics
Metrics of month-over-month growth are crucial for incrementally quantifying success. If you can track even small changes in your company, you can modify your approach if you notice that they are having a negative effect. Based on long-term data, this information can also assist you in making wise business decisions.
You can demonstrate the success of your business over time by tracking your growth rates. This is crucial for businesses looking to attract investors. For instance, you can use your growth rates to demonstrate that your business is gaining customers, turning a profit, or has the potential to be financially successful.
What are month-over-month growth metrics?
Professionals use month-over-month metrics as tools to monitor a company’s performance over time. Businesses track monthly metrics like sales, active users, and new subscriptions. They then compare the results from related months to make inferences about trends and business growth during those months.
As an illustration, if you have a blog and you encourage readers to subscribe to your posts, you might see 12 new subscribers in the first month, 30 in the following month, and 100 in the following month. By calculating your growth month over month, you may be able to plan for trends in subscription growth.
How to calculate month-over-month growth metrics
You can determine your month-over-month growth metrics in one of two ways:
How to calculate a single months growth rate
When determining a single metric of growth over two months, use the following system:
Growth rate for a single month equals (this month – last month) / last month.
To determine your month-over-month growth rate for two consecutive months, you must first gather the data you wish to compare. Consider the metrics that, if tracked for several months in a row, would most convincingly demonstrate your company’s growth. Only the first two months will be measured initially, but once you have data spanning several months, you can use this information to guide calculations and decisions.
Subtract the figure from the previous month from the figure from the most recent month. The difference between the two months, which represents your absolute growth, is revealed. Absolute growth is a measure of how much your company is expanding, but because it is relative to your starting metric, it can be challenging for investors to determine success solely based on this figure.
You would use the first part of the formula above to calculate absolute growth if you were the blogger whose subscriber base increased from 12 to 30 in your first two months of blogging:
30 – 12 = 18
In this example, your absolute growth is 18 new subscribers.
Subtract the value from the previous month from your absolute growth. This converts the number into a percent and gives the rate of change. Since a percentage doesn’t depend on the context of your previous figures, it is simpler to understand. The rate of change for your subscriber list, using the same example, is:
18 / 12 = 1.5, or 150%
How to calculate your growth rate over multiple months
You can use the following formula to determine your compound monthly growth rate, which is the growth rate of several months added together:
CMGR equals (1 / number of months’ difference) – 1 divided by the previous month’s value.
To use this formula correctly, follow these steps:
Choosing which months to include in the calculation is the first step because your CMGR is your growth rate over a number of months. You must be aware of the numbers for both the first and last months of the time period. Additionally, you must be aware of how many months separate the two. Without having to calculate the growth rate one month at a time, this information can reveal how much you have grown over a number of months.
Your blog’s subscriber list might have increased in the ways listed below, for instance:
Once you have your information, you can calculate your growth rate for the given period using the multiple-month formula.
You can enter your data into the formula, beginning with the first and last month’s metrics. The formula would look something like this for this example with blog subscribers:
CMGR = 64 / 12 ^ (1 / 5) – 1.
First, calculate the last month divided by the first month:
64 / 12 = 5.33
Next, you raise the value by 1/5, or 0.20.
5.33 ^ 1/5 = 1.40
To calculate the percent compound growth over five months, first subtract 1.
1.40 – 1 = 0.40, or 40% compound growth
Keep in mind that your growth rate for any given month could be higher or lower than your range of months’ total compound growth. This equation equalizes the growth rate for each of the months that you include in your calculation. If an investor, manager, or stakeholder requests more information, think about accurately illustrating growth between months. However, when necessary, this compound rate can serve as a good summary of your most recent advancement.
Compound vs. linear month-over-month growth
When identifying patterns in your business, both compound and linear growth models have value. However, you can use them for different purposes:
Linear
When your figures consistently increase by the absolute figure rather than by the growth rate, this is known as linear month-over-month growth. For instance, if 10,000 new users sign up for your music streaming service each month, your growth rate is actually falling each month:
Even though your business is expanding in this example, the growth rate is decreasing. Monitoring your monthly growth can provide you with the chance to make changes to your business model or test out new ideas while keeping a close eye on their success.
Compound
When you measure your growth by rate rather than an absolute figure and it is based on a series of months, you are referring to compound growth. When you calculate your compound growth, you can learn about long-term trends in your company and see that it is not only expanding but doing so at a faster rate.
For instance, if your company sells twice as many holiday decorations in December as it does in November, that type of month-over-month growth may not be indicative of the potential for business growth. However, if your 12-month compound monthly growth rate is 75%, this calculation gives you and any other external stakeholders long-term data and a foundation for forecasting future sales and growth.
3 common errors when calculating month-over-month metrics
When calculating month-over-month metrics, be aware of the following common mistakes:
1. Using growth rates to model unsustainable growth
Small absolute numbers can indicate rapid growth rates, which could represent the early success of your company incorrectly. For instance, if you increase your customer base from one to two, your growth rate has been 100%. In this case, telling an investor that your growth rate is 100% may be misrepresenting your company.
Furthermore, if you measure your monthly growth rate too soon, your growth rate will be lower the higher your figures rise. For instance, if you increase your customer base from 10,000 to 15,000 over the course of one month, your growth rate is 50%. Although your 15,000 new customers are better than just one, you may have set yourself up for unrealistic growth rates in the future by having high expectations when your absolute numbers were low. Prior to scaling your business and being able to share your growth rates, use absolute numbers.
2. Hiding irregular growth rates
You can display your absolute figures along with your compound growth if your business’ growth rates vary significantly from month to month. This can provide a more accurate representation of your business. Hide your irregular growth rates to avoid your business team from reevaluating their strategy and coming up with a more effective plan. Recognizing your strengths and weaknesses will help you find areas for improvement that will stabilize your growth overall for the benefit of your business. This can also protect you from backlash from investors.
3. Losing long term goals
You can closely track the development of your company by measuring your month-over-month goals, and you can make adjustments as needed. However, its only one metric of your businesss overall success. Its also important to keep in mind your long-term goals. While some adjustments may slow your month-over-month growth rate, they eventually result in higher revenue. By keeping in mind your mission and keeping an eye on long-term metrics as well, you can avoid concentrating too much on the minute details of month-over-month growth rates.
For instance, when changing your branding, your month-over-month growth may initially decline as a result of your diminished brand recognition. However, as consumers accept your new brand image after a few months, it might gradually increase again. In this situation, concentrating only on short-term objectives may tempt you to give up on the rebranding, but concentrating on your long-term goals can give you confidence in your decision.
FAQ
WHAT IS month over month growth?
One crucial metric for assessing the development of your business is month-over-month growth. Subtract the first month from the second month, then divide the result by the total for the previous month to determine the month-over-month growth.
How do you calculate month over month decrease?
Month-over-Month Growth Formula Month-over-Month (MoM) growth displays the change in a metric’s value expressed as a percentage of the value from the previous month, such as revenue or the number of active users.
