What is Average Revenue Growth
Average Revenue Growth describes how a company’s revenue changes over time, usually as a percentage. For a SaaS business, it can help show whether revenue is expanding, slowing, or declining across a series of months, quarters, or years. The term needs a clear definition because total revenue, monthly recurring revenue (MRR), and annual recurring revenue (ARR) measure different things.
When a team says it is tracking average revenue growth, it should specify which revenue measure it uses and which periods are included. Total revenue may include recurring subscriptions and non-recurring services, while MRR and ARR focus on recurring revenue under the company’s accounting and reporting rules. Choosing the right measure makes comparisons more useful.
How Does Average Revenue Growth Work?
Revenue growth compares revenue in one period with revenue in an earlier period. To calculate average growth over multiple periods, a business can calculate each period’s growth rate and then take the arithmetic average, or calculate a compound growth rate across the full time span. These approaches answer slightly different questions.
The arithmetic average gives equal weight to each period’s percentage change. The compound growth rate reflects the rate that would connect the starting value to the ending value over the full period. If growth varies substantially from one period to another, the two figures can differ. State which method you use so readers and decision-makers can interpret the result correctly.
It is also important to compare equivalent periods. A seasonal SaaS business may see revenue rise in one quarter and slow in another. A month-over-month comparison may be useful for operating decisions, while year-over-year comparisons can reduce some seasonal effects.
Average Revenue Growth Formula
Revenue Growth Rate (%) = ((Current Period Revenue − Previous Period Revenue) ÷ Previous Period Revenue) × 100
Apply this formula to each period you want to compare, using the same revenue definition and comparable periods.
To calculate the arithmetic average of several period growth rates, add the individual rates and divide by the number of periods. For a compound annual growth rate (CAGR), use the starting revenue, ending revenue, and number of years instead.
Arithmetic Average Growth = Sum of Period Growth Rates ÷ Number of Periods
CAGR = ((Ending Revenue ÷ Beginning Revenue) ^ (1 ÷ Number of Years) − 1) × 100
CAGR is generally used for a multi-year period when beginning revenue is positive. It summarizes the compound rate across the full span, not the ups and downs in every period.
Average Revenue Growth Example
Suppose a SaaS company reports revenue of $500,000 in one quarter and $600,000 in the next comparable quarter. Its revenue increased by $100,000.
Worked example
(($600,000 − $500,000) ÷ $500,000) × 100 = 20%
Revenue growth for this comparison is 20%.
Now imagine the company records period growth rates of 10%, 20%, and 5% across three periods. The arithmetic average is (10% + 20% + 5%) ÷ 3, or about 11.7%. This is a simple average of those three period rates. It is not necessarily the same as the compound growth rate from the first period’s revenue to the last.
Before interpreting the result, confirm that the periods are comparable and the revenue measure has not changed. A one-time implementation project or a change in billing timing can affect total revenue without indicating a lasting change in recurring revenue.
Why Is Average Revenue Growth Important for SaaS Businesses?
1. Shows the direction of business performance
Revenue growth helps teams understand whether the business is expanding or contracting. A series of periods is more informative than one isolated result because it can show whether growth is steady, volatile, or slowing.
2. Supports planning and forecasting
Finance and leadership teams use historical growth as one input when planning budgets, hiring, infrastructure, and investment. Historical growth is not a guarantee of future results, so forecasts should also consider pipeline, renewals, pricing changes, market conditions, and operational capacity.
3. Helps assess sales and marketing efforts
Growth can reflect new customer acquisition, conversion improvements, account expansion, or changes in pricing. Comparing revenue trends with customer and pipeline metrics helps teams investigate which activities may be contributing to the outcome.
4. Highlights retention and expansion patterns
Revenue can grow when existing customers upgrade or add products, and it can shrink when customers churn or downgrade. Looking at expansion and churn alongside overall growth helps teams understand whether new sales are compensating for losses in the existing customer base.
5. Provides context for business decisions
Revenue growth can inform choices about product investment, pricing, and market expansion. It should be considered with profitability, cash flow, acquisition costs, and customer retention rather than treated as a complete measure of business health.
What Factors Influence Average Revenue Growth?
- New customer acquisition: New subscriptions and contracts can add revenue as customers sign and begin paying.
- Customer retention: Keeping customers preserves the revenue base and avoids replacing lost revenue through new sales.
- Expansion revenue: Upgrades, add-ons, and additional seats can increase revenue from existing customers.
- Churn and downgrades: Cancellations and reduced plans can offset new or expansion revenue.
- Pricing and packaging: Price changes and plan design can affect revenue per customer, but their effect also depends on conversion and retention.
- Product mix: Different products or plans may have different prices and purchasing patterns.
- Seasonality and market conditions: Budget cycles, demand changes, and economic conditions can influence when customers buy.
- Billing and revenue recognition: Timing differences may affect reported revenue. Subscription billings and recognized revenue should not be treated as interchangeable.
Average Revenue Growth vs. Related Metrics
| Metric | What it measures | Key difference |
|---|---|---|
| Total revenue growth | Percentage change in total revenue between periods. | May include recurring and non-recurring revenue. |
| MRR growth rate | Percentage change in monthly recurring revenue. | Focuses on recurring subscription revenue measured monthly. |
| ARR growth rate | Percentage change in annual recurring revenue over a defined period. | Focuses on annualized recurring revenue, not all recognized revenue. |
| Average revenue per account (ARPA) | Average revenue attributed to each account in a defined period. | Measures revenue per account, not growth across periods. |
| Revenue retention | How revenue from a defined customer group changes over time. | Helps isolate revenue movement within an existing customer cohort. |
Use the metric that matches the question. If the goal is to understand recurring subscription momentum, MRR or ARR growth may be more suitable than total revenue growth. If the goal is to evaluate the average value of an account, ARPA is more directly relevant.
How Can SaaS Companies Improve Revenue Growth?
Improve the customer journey
Make it easy for suitable prospects to understand the product, start using it, and reach a meaningful outcome. Clear onboarding and useful guidance can help customers recognize value and continue using the product.
Strengthen customer retention
Monitor renewal risks, support issues, adoption, and customer feedback. Addressing recurring problems can protect existing revenue and reduce the pressure to replace churned customers with new sales.
Build relevant expansion paths
Offer upgrades or add-ons when they solve a real customer need. Expansion works best when customers understand the added value, rather than when teams push upgrades that do not fit their workflows.
Review pricing and packaging
Test whether pricing aligns with the value customers receive and the segments the business serves. Consider effects on conversion, retention, margin, and customer trust before changing prices broadly.
Use acquisition channels thoughtfully
Compare the revenue and retention quality of customers from different channels. A channel that brings many sign-ups may not produce sustainable growth if those customers do not activate, convert, or renew.
Coordinate revenue decisions across teams
Sales, marketing, finance, product, and customer success should use consistent definitions and share relevant insights. Revenue growth is easier to diagnose when teams understand how acquisition, usage, retention, and pricing interact.
Best Practices for Tracking Average Revenue Growth
- Define whether the analysis uses total revenue, MRR, ARR, or another measure.
- Choose comparable periods and state whether the rate is monthly, quarterly, or annual.
- Explain whether you are reporting an arithmetic average or a compound growth rate.
- Separate one-time revenue from recurring revenue when the business question requires it.
- Review both percentage growth and the absolute revenue change.
- Segment results by product, customer size, plan, or channel when useful.
- Compare growth with churn, retention, ARPA, acquisition cost, and profitability.
- Document unusual events, pricing changes, acquisitions, or accounting changes that affect comparisons.
Common Mistakes to Avoid
Confusing total revenue growth with ARR or MRR growth
These metrics do not measure the same thing. Clearly label the revenue measure and do not present a total revenue growth rate as recurring revenue growth.
Using inconsistent periods
Comparing one month with a full quarter or mixing fiscal and calendar periods can distort the result. Align the periods before calculating or explaining growth.
Relying on averages alone
An average can hide a sharp decline in one period or an unusually strong result in another. Review the individual period rates and underlying revenue values.
Ignoring customer losses
New sales may conceal churn or contraction in the existing customer base. Review new revenue, expansion, contraction, and churn separately where data is available.
Treating growth as proof of profitability
A company can grow revenue while spending heavily to acquire customers or deliver the product. Consider margins, cash flow, and acquisition costs before judging sustainability.
Frequently Asked Questions
What is a good average revenue growth rate for SaaS?
There is no single rate that fits every SaaS company. Growth expectations vary by company stage, market, product, customer segment, and business model. Compare against relevant peers and the company’s own history, and consider profitability and retention as well.
Is average revenue growth the same as CAGR?
No. An arithmetic average calculates the mean of individual period growth rates. CAGR estimates the constant compound annual rate that connects a starting value to an ending value over a specified number of years. They can produce different results.
Can revenue growth be negative?
Yes. Negative growth means revenue in the current period is lower than in the comparison period. Causes can include churn, downgrades, fewer new sales, lower usage, pricing changes, or timing differences.
How often should a SaaS company measure revenue growth?
Many businesses review revenue monthly and assess broader trends quarterly or annually. The right cadence depends on reporting needs and revenue patterns. Keep definitions consistent so that changes are meaningful.
Why should revenue growth be tracked with retention?
Growth alone does not reveal whether revenue is coming from new customers or from existing customers expanding. Retention and churn metrics help explain whether the current customer base is sustaining revenue or whether new sales must continually replace losses.