The CAGR formula is a single equation that translates multi-year growth into an annualized rate. Once you have done it once, it becomes second nature — and once internalized, you stop trusting any growth claim that does not use it.
The formula
CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Years) − 1
- Ending Value — the value at the end of the period.
- Beginning Value — the value at the start of the period.
- Years — the number of years elapsed (use decimals for partial years).
- The exponent (1 ÷ Years) is the "nth root" operation — pulling the per-year growth out of the total growth.
- The subtraction of 1 converts the growth factor into a percentage rate.
A worked subscription example
Your MRR was $100,000 in January 2022 and $215,000 in January 2026. That is 4 years of growth.
- Ending ÷ Beginning = 215,000 ÷ 100,000 = 2.15
- 2.15^(1 ÷ 4) = 2.15^0.25 ≈ 1.211
- 1.211 − 1 = 0.211 = 21.1% CAGR
So your MRR grew at 21.1% per year compounded over four years.
Common mistakes
- Wrong year count. 2022 to 2026 is 4 years, not 5. Count the gaps, not the data points.
- Mixing data types. Use the same metric at both endpoints (MRR to MRR, ARR to ARR, customer count to customer count).
- Using a snapshot from a seasonal peak or trough. Pick endpoints that are seasonally comparable (e.g., January to January, not December to June).
- Negative beginning values. CAGR is undefined when the starting value is zero or negative. Use absolute change instead.
In Excel or Google Sheets
The formula is: =((Ending/Beginning)^(1/Years))-1
Or use the built-in RRI function: =RRI(Years, Beginning, Ending)
For more context see compound annual growth rate and growth rate formula.