Enter revenue for two periods to get the growth rate as a percentage and in currency, plus the compound monthly rate and where the trend lands in twelve months if it holds.
The first formula is the one everyone knows and it is correct for a single step. The second is the one that matters when you are comparing periods of different lengths or projecting forward, because growth compounds and simple percentages do not.
Revenue moving from $34,500 to $37,410 is 8.4 percent growth. Stated that way it sounds modest. Sustained monthly, it is 164 percent a year, and the business more than doubles in under nine months.
The error runs the other way too. A quarter that grew 25 percent is not growing 100 percent a year, it is growing 144 percent, because each quarter compounds on the last. Multiplying a period rate by the number of periods understates good growth and overstates recovery from bad growth.
The practical rule: never multiply a growth rate to annualise it. Raise it to the power of the number of periods. The calculator above does this, which is why the annualised figure is larger than instinct suggests.
The doubling time is often the most useful output on the page. Divide 72 by the growth percentage for a rough answer, or read the exact figure above. It converts an abstract percentage into a date you can plan against.
Revenue growth on its own says nothing about whether the business improved, because growth can always be bought. The question is what it cost.
| Scenario | Revenue growth | Ad spend growth | Verdict |
|---|---|---|---|
| Spend flat, revenue up | 8.4% | 0% | Genuine efficiency gain |
| Spend up in line | 8.4% | 8.4% | Bought at constant efficiency |
| Spend up faster | 8.4% | 20% | Efficiency falling, watch ROAS |
| Spend up much faster | 8.4% | 50% | Buying growth at a loss |
This is why revenue growth should never be reported without the spend figure beside it. A month that grew 8.4 percent on flat spend and a month that grew 8.4 percent on a fifty percent budget increase are opposite outcomes described by the same statistic.
Most growth figures are distorted before anyone does arithmetic on them, because the two periods being compared are not comparable.
Different lengths. A 31 day month against a 28 day month carries a built-in 10.7 percent advantage. For monthly reporting, either normalise to a daily rate or compare the same month a year earlier.
Seasonality. December against November tells you almost nothing in retail. December against the previous December tells you a great deal. Year on year comparison removes seasonality at the cost of being slow to detect change, which is why both are usually worth having.
Base effects. Growth from a small or unusual base produces meaningless percentages. A month that recovers from an outage looks spectacular and reflects nothing.
State the comparison you used. Growth of 8.4 percent means nothing without knowing whether it was against last month, last year or the last thirty days.
Never report revenue growth without the spend figure beside it. Growth can always be bought.
The largest trap is extrapolation. The projection on this page assumes the rate holds for every future period, and growth rates almost never hold, because the easy demand is captured first and each subsequent customer is harder to reach than the last. Treat the twelve period figure as an illustration of compounding, not a forecast.
The second is averaging percentages. The mean of 20 percent growth and 20 percent decline is not zero, it is a 4 percent loss, because you lose twenty percent of the larger number. Average growth must be calculated as a compound rate across the whole span, not as the arithmetic mean of the individual periods.
The third is confusing growth with health. A business growing 30 percent while burning cash faster than it grows is not succeeding, it is spending. Read this number next to burn rate and contribution margin, never on its own.
Raise it to the power of twelve rather than multiplying by twelve. Eight percent a month is 151 percent a year, not 96 percent, because each month compounds on the last.
Both, for different reasons. Month on month detects change quickly but is distorted by seasonality and by months of different lengths. Year on year removes seasonality but is slow to show a turn.
No. It assumes the current rate holds forever, which growth rates almost never do, because the cheapest demand is captured first. Treat it as an illustration of compounding.
Not arithmetically. Twenty percent up followed by twenty percent down is a four percent loss, not flat. Use the compound rate across the whole span instead.