Month-on-month growth – an introduction
Month-on-month (MoM) growth (also known as month-over-month growth) is a metric used to measure short-term growth. Its simplicity makes it easy to calculate and understand which can be used across any part of a business.
What is month-on-month growth?
MoM growth is a measure of growth that businesses use across the entire business. While it’s commonly used to measure revenue growth, it’s equally as applicable to use to measure active users, number of subscriptions, website activity and other key metrics. Growth can be calculated in a similar way for ‘quarter-on-quarter’ and ‘year-on-year’ growth but, month-on-month is focused on the immediate term.
MoM growth rate is sometimes calculated or shown on a linear basis i.e. the monthly increase is relative to the month one, rather than the most recent prior month. We wouldn’t advise this as it’s generally not recognised and can be misleading.
Why is month-on-month growth so important?
Growth is a fundamental measure for investors. Investors are particularly interested in MoM and YoY growth rates as it’s how they view their investments and benchmark their portfolio. MoM growth gives immediate feedback on which strategies are working and which aren’t.
Absolute and month-on-month growth are very different. Increasing web traffic by 10,000 visitors every month is much less compelling than increasing your traffic by 10% every month. The latter increases exponentially because of the monthly compounding effect. In the 10,000 visitor example, this will ultimately get to a point where the growth is so minimal that growth is minimal and investors aren’t interested. It’s this exponential effect investors like.
MoM growth is often used as an assumption feeding into forecasts and projections, so investors will also look to understand, challenge and track you against this metric.
What is a good month-on-month growth?
Growth rate is relative to where a business is in its lifecycle. For example, a 20% MoM growth for a scale-up business with £500k revenue per month would be considered good. Whereas, an early-stage start-up that’s recently just launched their product with £2,000 revenue, would be disappointed with a 20% MoM growth rate.
For very early-stage start-ups, absolute numbers are normally more useful. It’s more meaningful to know a SaaS start-up has 20 new users in month, rather than 20% increase (on 100 users), as it’s more relatable.
What does month-on-month growth look like?
How do you calculate month-on-month growth?
The formula to calculate month-on-month growth is:
Month-on-month growth = (Current month – Prior month) / Prior month x 100%
Month-on-month growth worked example
If a company has the following, it’s month-on-month growth rate can be calculated like this:
- Month 1: 100,000 users
- Month 2: 110,000 users
Month-on month-growth = (110,000 - 100,000) / 100,000 x 100% = 10%
To expand this example, if the business continues to grow by 10,000 users per month until month 5, MoM growth actually declines, which wouldn’t paint a great picture for investors:
MoM growth is useful to help identify trends in your business or measure growth in a particular area. It’s less useful to make long-term strategic decisions as it’s much harder to maintain the growth rate. MoM growth which is sustained or improving is also naturally very attractive to investors.
MoM growth is a favoured metric by investors that can be used and calculated for any part of your business and when used alongside other metrics can be extremely useful.