Founders and investors use CAGR and YoY interchangeably, but they measure different things. Confusing them leads to misleading reporting and bad planning decisions.
Year-over-Year (YoY) growth
YoY measures the change from one specific period to the same period a year ago. If you had $800k ARR in June last year and $1.6M ARR this June, your YoY growth = 100%.
YoY is the standard investor metric. It removes seasonal variation and is easy to compare across companies. Its limitation: it reflects only the most recent 12 months and can be distorted by strong or weak comparison periods.
Compound Annual Growth Rate (CAGR)
CAGR smooths multi-year growth into a single annualised rate. CAGR = (Ending / Beginning)^(1/Years) − 1
Example: $100k to $800k ARR over 3 years = (800k/100k)^(1/3) − 1 = 100% CAGR.
CAGR is useful for investor presentations covering 3–5 year periods and for comparing companies that had different growth trajectories in individual years. It hides volatility — two companies can have the same CAGR with very different year-by-year paths.
When to use which
- Pitch deck / investor update: YoY growth (last 12 months)
- Multi-year trajectory: CAGR (3–5 year view)
- Growth rate trend: Both side by side
Use the Revenue Growth Rate Calculator to compute both metrics from your current and prior revenue figures.