Growth rate: what it is and how to calculate revenue growth

Growth rate is the pace at which a metric moves between two periods, expressed as a percentage. In SaaS it almost always means revenue growth rate, measured on MRR or ARR, but the same calculation applies to the customer base, the number of subscriptions or any volume you track over time.

More than a standalone number, growth rate tells a story of trajectory: it shows whether the business is accelerating, holding steady or losing steam. That is why it is one of the first metrics investors look at, since it captures the company momentum in a single line.

The formula is the same for any window: take the value at the end of the period, subtract the value at the start and divide by the starting value. Multiply by 100 to get the percentage.

• Growth rate = (ending value - starting value) / starting value x 100.
• Example: revenue went from $100k to $120k, so growth is (120 - 100) / 100 = 20%.
• Always use the same recurring base at both points, so you do not compare recurring revenue with one-off charges.

The denominator is the detail that trips people up. A drop from $120k to $100k is not -20% but -16.7%, because the starting point changed. Being clear about which value sits in the base avoids wrong conclusions.

The same formula changes meaning with the window. MoM (month over month) compares one month with the previous and reacts fast, useful for self-serve products. YoY (year over year) compares the current month with the same month a year earlier and smooths seasonality. The quarterly view sits in between, common in board reports.

• MoM: sensitive and immediate, but noisy and prone to seasonality.
• YoY: stable and comparable, but slow to reveal recent shifts.
• Quarterly: a balance between reaction and stability.

The good practice is to look at more than one window at once. A strong YoY can hide three straight months of falling MoM, a sign of a slowdown that only the short window reveals.

Growing 5% every month is not the same as growing 60% in a year, but closer to 80%, because growth compounds on an ever larger base. This compounding effect is the heart of SaaS growth and the reason the monthly rate matters so much.

To compare long periods, people use CAGR (compound annual growth rate), which smooths the trajectory into an equivalent average rate. A 20% CAGR means revenue grew, on average, 20% per year on a compound basis, even if some years were stronger than others. It is the standard language for talking about multi-year growth.

There is no universal number: a good rate depends on the size and stage of the company. It is natural for a small SaaS to grow hundreds of percent a year, while a mature company treats 30% annual growth as an excellent result. Comparing your own rate with peers of the same size is more useful than chasing an absolute target.

An important counterpoint is the so-called Rule of 40, popularized by Bessemer Venture Partners: the sum of growth rate and profit margin should sit around 40% or more. It is a reminder that growth is not worth any cost, and that growth and profitability must be read together. The private SaaS survey by KeyBanc Capital Markets tracks these growth and efficiency patterns year after year.

Growth rate is not a switch, it is the result of forces pushing revenue up and down. On the positive side are new customers and expansion of the current base; on the negative side, churn and downgrades. Breaking growth into these MRR movements shows where it really comes from.

Retention is the quiet foundation. A base that expands more than it loses, with NRR above 100%, grows even without adding a single new customer. That is why the most consistent companies treat growth rate as a consequence of retention and expansion, not just acquisition.