One number for growth over several years
Real growth is lumpy. Revenue jumps one year, stalls the next, then picks up again. CAGR, the compound annual growth rate, smooths all of that into a single yearly rate: the steady growth that would take you from where you started to where you ended in the same number of years.
That makes it the standard way to compare growth across businesses, products or periods of different lengths. Enter a start value, an end value and the years between them, or switch modes to see where a given rate would take you.
How to use it
- Choose Find the CAGR to measure past growth, or Project a value forward to plan ahead.
- Enter the starting value: revenue, customers, subscribers, units sold, or anything else that grows.
- Enter the ending value and the number of years between the two. Part years are fine, like 2.5.
- Read the CAGR. You also see the total growth and the simple average per year, so you can see how much compounding changes the picture.
The CAGR formula
CAGR = (end value ÷ start value)^(1 ÷ years) − 1
end value = start value × (1 + CAGR)^yearsDividing end by start gives the total growth factor. Taking the "years"-th root spreads that factor evenly across each year. Subtracting 1 turns the factor into a rate.
In a spreadsheet, the CAGR formula is =(B2/A2)^(1/C2)-1 with the start value in A2, the end value in B2 and the years in C2. Format the cell as a percent. Many spreadsheets also offer =RRI(C2, A2, B2), which gives the same answer.
Worked example: revenue from 120,000 to 210,000 in four years
- Growth factor: 210,000 ÷ 120,000 = 1.75
- Fourth root: 1.75^(1 ÷ 4) = 1.1502
- CAGR: 1.1502 − 1 = 0.1502, so 15.02% a year
Total growth was 75%. Dividing that by four years gives a simple average of 18.75%, which overstates the yearly pace because it ignores the way each year builds on the last. The CAGR of 15.02% is the rate that, applied four times in a row, really does turn 120,000 into 210,000.
How growth adds up
| Yearly rate | After 3 years | After 5 years | After 10 years |
|---|---|---|---|
| 5% | 15.8% | 27.6% | 62.9% |
| 10% | 33.1% | 61.1% | 159.4% |
| 15% | 52.1% | 101.1% | 304.6% |
| 20% | 72.8% | 148.8% | 519.2% |
A steady 15% a year roughly doubles a value in five years. That is the power behind CAGR: small differences in the yearly rate turn into big differences over a decade.
What CAGR does not tell you
- It hides the bumps. Two businesses with the same CAGR can have had very different years in between.
- It depends on the end points. Starting from a bad year makes growth look strong; ending on one makes it look weak. Try a few start years to see how stable the figure is.
- It cannot handle a start of zero or below. Growth from nothing has no rate. The growth rate calculator covers periods other than years and continuous growth.
Frequently asked questions
How do I calculate CAGR?
Divide the ending value by the starting value, raise the result to the power of 1 divided by the number of years, then subtract 1. Growing from 50,000 to 80,000 over 3 years gives 1.6^(1/3) − 1 = 0.1696, a CAGR of 16.96%. Enter the three numbers above and the calculator shows each step.
What is the CAGR formula in Excel?
Use =(end/start)^(1/years)-1, for example =(B2/A2)^(1/C2)-1, and format the cell as a percentage. Excel and most other spreadsheets also have =RRI(years, start, end), which returns the same figure. Both match the answer this calculator gives, so you can check a spreadsheet against it.
Why is CAGR lower than the average yearly growth?
A simple average divides total growth by the number of years, as if each year started from the original value. In reality each year starts from a higher base. CAGR accounts for that, so it is always a little lower than the simple average when growth is positive. Here, 75% over four years is 18.75% on average but 15.02% as CAGR.
Can CAGR be negative?
Yes. If the ending value is lower than the starting value, CAGR comes out below zero. Falling from 200 to 150 over 3 years is a CAGR of about −9.1%. If the end value is zero the rate is −100%. A starting value of zero has no CAGR at all, because there is nothing to grow from.
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