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Market Analysisimportant

Compound Annual Growth Rate (CAGR)

The mean annual growth rate over a specified time period, assuming growth compounds.

Formula
CAGR = (Ending Value / Beginning Value)^(1/Years) - 1
Example

Revenue grew from $1M to $2.5M over 3 years: CAGR = ($2.5M/$1M)^(1/3) - 1 = 35.7%

Good Range

Market CAGRs of 10%+ indicate growing opportunities

Warning Range

Negative CAGR indicates shrinking market

Complete Definition

Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment or metric over a specified time period. It smooths out volatility to show the steady rate at which something would have grown if it grew at the same rate each year.

How to Calculate CAGR

CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1

Why CAGR Is Used

- Smooths out yearly volatility - Enables fair comparisons - Shows long-term trends - Standard metric in finance - Easy to understand growth rate

CAGR Applications

Market Growth

"The SaaS market has a 12% CAGR through 2027"

Company Growth

"Revenue CAGR of 50% over 3 years"

Investment Returns

"Portfolio CAGR of 8% since inception"

CAGR Limitations

- Doesn't show volatility or risk - Assumes consistent growth - Can be misleading for short periods - Sensitive to start/end point selection

Interpreting CAGR

- **< 5%**: Low/slow growth - **5-10%**: Moderate growth - **10-25%**: Strong growth - **25-50%**: Very high growth (typical for successful startups) - **> 50%**: Exceptional (early-stage or hypergrowth)

Used in:Market AnalysisFinancial Projections

Related Terms

Total Addressable Market (TAM)
The total market demand for a product or service if 100% market share were achieved.

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