CAGR

Compound Annual Growth Rate

CAGR stands for Compound Annual Growth Rate. It’s a useful measure in finance and business to understand the growth over multiple years, considering the compounding effect. CAGR represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

CAGR Formula

Where:

• EV (Ending Value): This is the value of the investment at the end of the period. In the context of sales and marketing, it could be the revenue or sales figure at the end of the period under consideration.
• BV (Beginning Value): This is the value at the start of the period. This could be the revenue or sales figure at the start of the period for a business.
• n (Number of Years): This is the period over which the growth is measured, expressed in years.

CAGR is particularly useful in comparing the growth of different investments, businesses, or business segments over time. It helps understand the average annual growth rate, assuming the investment grew steadily.

The key benefit of CAGR is its simplicity and the fact that it smoothes out the rate of growth over a period, which can provide a clearer picture of performance, especially when comparing different investments.

CAGR can be an invaluable metric in the context of sales and marketing. It allows businesses to track their sales or market share growth over multiple years, irrespective of any fluctuations that might occur year on year. This metric can also be a powerful tool in presentations and reports to illustrate the growth potential or historical performance of a product, service, or entire business.

• Abbreviation: CAGR
• Source: Gartner