What Is Month-Over-Month Growth? (With Calculation Tips)

Month-over-Month (MoM) is the lowest unit of measurement used to objectively reflect the pace of growth in a firm. This statistic scales up to Quarter on Quarter and Year on Year growth tracking to give us an understanding of rates of increase across varying time intervals. It’s most typically utilized by early-stage organizations, such as San Francisco startup entrepreneurs, for predictions.

Month-over-month (MoM) growth shows the change in the value of a specific metric as a percentage of the previous month’s value. Month-over-month growth is often used to measure the growth rate of monthly revenue, active users, number of subscriptions, or other key metrics.

Month over Month Calculation in Power BI using DAX

Importance of month-over-month growth metrics

Month-over-month growth metrics play an important role in quantifying success incrementally. If you can measure the minor changes in your business, you can adjust your strategy if you see a change having a negative impact. This information can also help you make good business decisions based on long-term data.

By measuring your growth rates, you can show your companys success over time. This is important for companies that are trying to gain investors. For example, you can use your growth rates to prove that your company has the potential for financial success, is gaining customers or is making a profit.

What are month-over-month growth metrics?

Month-over-month metrics are tools that professionals use to track a companys performance over time. Companies measure things like sales, active users or new subscriptions each month. Then they compare the results from consecutive months to draw conclusions about trends and growth in the business through those months.

For example, if you are running a blog and encouraging readers to subscribe to your posts, you might see 12 new subscribers the first month, 30 the next and 100 the next month after that. You can quantify your growth and potentially plan for upward trends in subscriptions by measuring your month-over-month growth.

How to calculate month-over-month growth metrics

There are two different ways you can calculate your month-over-month growth metrics:

How to calculate a single months growth rate

This is a system you can use when youre finding a single metric of growth between two months:

Single month growth rate = (this month – last month) / last month

The first step is to gather the figures you want to compare in order to assess your month-over-month growth rate for two consecutive months. Think about which metrics would show your growth as a company most convincingly, particularly if you tracked the metric for several months consecutively. Youll measure just the first two months as a starting point, but you can use this data to inform calculations and decisions once youve acquired several months worth of information.

Take the figure from the most recent month and subtract the previous months figure from it. This gives you the difference between the two months, which is your absolute growth. Your absolute growth is a figure that can tell you how much your business is growing, but because its relative to your starting metric, it can be hard for investors to judge success from this number alone.

If you are the blogger whose subscriber base grew from 12 to 30 in your first two months of blogging, youd calculate absolute growth using the first part of the formula above:

30 – 12 = 18

In this example, your absolute growth is 18 new subscribers.

Divide your absolute growth by the figure from the prior month. This provides the rate of change by turning the figure into a percent. A percent is easier to understand because it isnt reliant on the context of your previous figures. Using the same example, the rate of change for your subscriber list is:

18 / 12 = 1.5, or 150%

How to calculate your growth rate over multiple months

To calculate the growth rate of multiple months together, which is your compound monthly growth rate, you can use this formula:

CMGR = last month / first month ^ (1 / # of months difference) – 1

Here are the steps you can take to use this formula correctly:

Your CMGR is your growth rate over several months, so the first step is deciding which months you want to include in the calculation. You need to know the figure for the first month in the time period and the last month in the time period. You also need to know the number of months between the two. This information can tell you what your growth was over a period of months without having to calculate the growth rate one month at a time.

For example, you might have the following growth in your blog subscriber list:

Once youve gathered your data, you can use the multiple-month formula to find your growth rate for the time period.

You can insert your information into the formula, starting with the metrics for the first and last month. For this example with blog subscribers, the formula would look like this:

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

Then, you subtract 1 to get the percent compound growth over five months.

1.40 – 1 = 0.40, or 40% compound growth

Remember that your rate of growth for an individual month may be higher or lower than your compound growth for the entire range of months. This formula standardizes a rate of growth across all the months you include in your calculation. Consider accurately representing growth between months if an investor, supervisor or stakeholder asks for details. However, this compound rate can be a good summation of your recent progress when needed.

Compound vs. linear month-over-month growth

Both compound and linear growth models have value in determining patterns in your business. However, you can use them for different purposes:

Linear

Linear month-over-month growth occurs when your figures are growing consistently by the absolute figure, not by the rate of growth. For example, if your music streaming service grows by 10,000 users every month, your growth rate between each month and the one before is actually decreasing:

In this example scenario, even though your business is growing, the growth rate is decreasing. Monitoring your monthly growth can be an opportunity to adjust your business model or to try new things and closely monitor their success.

Compound

Compound growth is when you measure your growth by rate instead of an absolute figure, and its informed by a series of months. Calculating your compound growth can give you information about long-term trends in your business, and it shows that your business is not only growing, but increasing the speed at which it is growing.

For example, if your holiday decoration company sells double the units in December than it does in November, that type of month-over-month growth may not be reflective of the business growth potential. However, if your compound monthly growth rate for twelve months is 75%, this calculation provides you and any external stakeholders with long-term data and a basis with which to predict future growth and sales.

3 common errors when calculating month-over-month metrics

Here are some common errors to be aware of when calculating month-over-month metrics:

1. Using growth rates to model unsustainable growth

Small absolute numbers can indicate high rates of growth, which may misrepresent the success of your business in its early stages. For example, if you go from one customer to two customers, you have had a 100% rate of growth. In this situation, telling an investor you have a 100% rate of growth may misrepresent your business.

Additionally, if you measure your monthly growth rate too soon, the higher your figures go, the lower your growth rate is. For example, if you go from 10,000 customers one month to 15,000 customers the next, you have a growth rate of 50%. Your 15,000 new customers are better than only one new customer, but by setting unrealistic expectations when your absolute figures were low, youve potentially set yourself up for unrealistic growth rates going forward. Use absolute numbers until you have scaled your business and can benefit from sharing your growth rates.

2. Hiding irregular growth rates

If you have irregular growth rates between months, you can show your absolute figures along with your compound growth in order to clarify your businesss growth patterns. This can provide a more accurate representation of your business. Hiding your irregular growth rates can prevent your business team from rethinking their strategy to find a more successful approach. By recognizing your strengths and your weaknesses, you can identify areas to develop that stabilize your growth overall to benefit your company. This can also protect you from backlash from investors.

3. Losing long term goals

Measuring your month-over-month goals can help you monitor the growth of your business closely and make changes when necessary. However, its only one metric of your businesss overall success. Its also important to keep in mind your long-term goals. Some changes may cause a decrease in your month-over-month growth rate but eventually lead to increased revenue. Avoid focusing too much on the minute details of month-over-month growth rates by remembering your mission and monitoring long-term metrics as well.

For example, when switching to new branding, your month-over-month growth may decrease at first because you are losing brand recognition. However, after a few months, it may steadily increase again as consumers accept your new brand image. Focusing only on month-over-month goals may encourage you to abandon the rebranding in this scenario, but focusing on your long-term vision can help you feel confident in your choice.

FAQ

WHAT IS month over month growth?

Month-over-month growth is a key metric for measuring the growth of your business. To calculate Month-over-Month growth, subtract the first month from the second month and then divide that by the last month’s total.

How do you calculate month over month decrease?

Month-over-Month Growth Formula

Month-over-month (MoM) growth shows the change in the value of a metric – such as revenue or the number of active users – expressed as a percentage of the prior month’s value.

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