Compound Annual Growth Rate (CAGR)

A ‘Compound Annual Growth Rate’ (or ‘CAGR’) defines the average annual growth rate of an investment over a specified period of time, which must be longer than a year. In our experience, a CAGR model is particularly useful to compare annual growth rates from different data sets, such as revenue growth of companies in the same industry. A CAGR is a rather simple type of metric: it is neither an accounting term, nor a true return rate as it refers to the ideal rate an investment would have grown if its growth was fixed, which actually never happens in real life. It is, however, a very useful representational figure, used to bracket an annual growth rate and highlight investment returns, gauging the efficacy of Performance Management within some elements of a business, such as: revenue, registered users or units delivered.

In determining a client’s website platform set-up, we formulate our client’s budget based on this 3-year incremental revenue potential, at a traditional ad-to-sales-ratio that facilitates ROI on an equally accelerated timeline.