What Is CAGR? How to Calculate Compound Annual Growth Rate

Updated October 2026 · 5 min read

CAGR — Compound Annual Growth Rate — is the rate at which a value would have grown each year to get from a starting point to an ending point, if it had grown at a constant rate. It is the most widely used measure for smoothed growth comparisons in investing, business and SaaS metrics.

The CAGR Formula

Worked Example

A company's revenue grew from $1 million in 2020 to $3.5 million in 2026 (6 years).

• CAGR = (3.5 ÷ 1)^(1/6) − 1
• = (3.5)^0.1667 − 1
• = 1.2328 − 1
• = 0.2328 = 23.3% per year

This means the business grew at the equivalent of 23.3% every year — even if actual year-on-year growth was uneven (e.g. 40% in good years, 5% in slow ones).

Why CAGR Is More Useful Than Average Growth Rate

Simple average growth rate can be misleading. Consider an investment that goes: +100%, −50%, +100%, −50% (4 years). Simple average = +25% per year. But your actual result: $100 → $200 → $100 → $200 → $100 — you broke even. The CAGR is 0%, which correctly reflects this.

CAGR accounts for compounding, so it always reflects the true economic result.

Common CAGR Benchmarks

CAGR in Investor Presentations

VCs and analysts use CAGR to compare companies of different sizes on an equal footing. A company growing from $500K to $5M ARR over 3 years has a CAGR of 115% — far more impressive context than just saying "revenue grew 10×."