Compound annual growth rate (CAGR) is the smoothed yearly rate at which revenue would have grown if it compounded steadily.
CAGR (%) = ((ending value ÷ beginning value) raised to the power of (1 ÷ number of years) − 1) × 100
Your ARR grows from £1,000,000 to £3,375,000 over three years.
((£3,375,000 ÷ £1,000,000) raised to the power of (1 ÷ 3)) − 1 = 1.5 − 1 = 0.5, i.e. a 50% CAGR
CAGR expresses growth as a single annualised rate, as if revenue had risen by the same percentage every year. It strips out the lumpiness of real growth — a great year followed by a flat one — and answers a cleaner question: at what constant yearly rate would you have travelled from the starting figure to the ending figure over this many years?
Because it compounds, CAGR is not the same as a simple average of annual growth rates. Growing 100% one year and 0% the next is not 50% a year; the CAGR is the constant rate that links beginning to end value, which here is closer to 41%. That smoothing is exactly what makes CAGR useful for comparing investments, products, or companies of different ages on equal footing, and unreliable when the underlying growth is wildly volatile.
The trap is that CAGR only ever looks at the two endpoints. It is blind to everything in between, so a business that spiked and then declined can post the same CAGR as one that grew steadily, and choosing a flattering start or end date can manufacture an impressive-looking rate. Always pair it with the actual year-by-year path before drawing conclusions.
CAGR is the standard way to summarise multi-year growth in one comparable number, which is why it appears in nearly every board deck, investor update, and market-sizing study. It lets you compare a three-year and a five-year growth story like-for-like and feeds directly into forecasting, but its endpoint blindness means it should always be read next to the year-by-year detail rather than on its own.
For private B2B SaaS, a healthy ARR CAGR runs roughly 25–40% for established companies, while the fastest scale-ups exceed 50–60%; the much-cited "T2D3" path implies a CAGR well above 100% in the early years from about £1M ARR (sources: SaaS Capital 2025 growth survey; Bessemer State of the Cloud).
CAGR is the constant compounding rate that links a beginning value to an ending value, whereas a simple average just adds up the yearly growth rates and divides. Because growth compounds, the average overstates the true rate — 100% then 0% averages to 50% a year but has a CAGR of only about 41%.
It looks only at the start and end points and ignores everything in between, so a volatile path can share a CAGR with a steady one. Cherry-picking the start or end date can also inflate it, which is why it should be read alongside year-by-year growth and your underlying MRR trend.
Yes. Use the same formula with beginning and ending ARR (or MRR) and the number of years between them. Annualising recurring revenue first keeps the comparison clean, since CAGR assumes a yearly compounding period.
Connect your Stripe account and see your real MRR, churn, and LTV in real time — on desktop and mobile.
No credit card required · Connect Stripe in 1 click
No credit card required. Connect Stripe in 1 click.
We're building iOS and Android apps that'll bring your metrics everywhere.
Our mobile apps are currently in active development. Follow us on social media for updates and be the first to know when they launch.