Definition
CAGR (Compound Annual Growth Rate) is the smoothed annual growth rate of a metric (like revenue, ARR, valuation, or user base) over a period of time, assuming it grew at a steady rate each year.
It compresses volatile year-over-year growth into a single, consistent percentage – making it ideal for comparing companies, investments, or time periods.
If your revenue grew from $120,000 to $300,000 in 3 years, CAGR tells you: “What constant annual rate would have led to this growth?”
CAGR formula
CAGR = [(Ending Value ÷ Starting Value) ^ (1 ÷ Number of Years)] – 1
Why CAGR matters
CAGR vs YoY
When to use CAGR
In pitch decks to show:
- Revenue or ARR trajectory
- Customer or user base growth
- Valuation or share price appreciation
- Retention over multiple years (e.g., Net Revenue Retention CAGR)
In investment cases:
- VC portfolio benchmarking
- Fund return comparisons
- SaaS comp sheet rankings
Red flags and misuses
Final takeaway
CAGR is the growth metric that speaks the language of investors and long-term thinkers. It compresses years of hustle into a single, clean number, but it should complement, not replace, more detailed metrics like YoY growth, retention, and margin.
