MoM Growth % = (Current Month Value − Prior Month Value) ÷ Prior Month Value × 100
A company with $42,000 MRR in March and $48,300 in April:
Annual growth rates require a year of history and obscure current performance. A startup reporting 400% year-over-year growth may have grown 40% across the first six months and 2% across the last three. The annual figure is accurate and useless.
MoM surfaces the current trajectory. It also compounds fast enough to matter: 10% MoM sustained across twelve months produces roughly 214% annual growth. At 15%, the figure is approximately 435%.
Annualized rate = (1 + monthly rate)^12 − 1
That last figure explains why sustained high MoM rates are rare. Growth that looks modest monthly becomes implausible when extended across a full year.
MoM figures are only as reliable as the close process behind them. If revenue recognition varies between months, or if expenses land in the period they were paid rather than incurred, MoM comparisons measure accounting inconsistency rather than business performance.
Any company presenting MoM growth to investors should be able to demonstrate that the periods were closed on a consistent basis. Investors will ask.
Between 5% and 10% is generally considered healthy for early-stage companies. Rates above 15% sustained for several months are strong but rarely maintained for long, since the compounding math becomes implausible across a full year.
Not as a primary measure. Sequential monthly comparison reflects the calendar rather than performance in seasonal businesses. Year-over-year comparison for the same month is more meaningful.
Add one to the monthly rate expressed as a decimal, raise the result to the twelfth power, then subtract one. A 10% monthly rate becomes 1.10 raised to the twelfth power, minus one, or approximately 214%.
Because the base is small. Adding two customers to a base of four produces a far larger percentage than adding two hundred to a base of four hundred. This is why absolute figures belong alongside the percentage.
By closing each period on a consistent basis, recognizing revenue in the period earned, and recording expenses in the period incurred. A three-month rolling average also reduces distortion from one-off events.
