Understanding the growth of an investment, a business metric, or a population is fundamental to analysis. The Simple Annual Growth Rate (SAGR) is a straightforward method to determine how much a value has grown over a period of time, expressed as an average yearly percentage. Unlike Compound Annual Growth Rate (CAGR), SAGR does not account for compounding, making it useful for linear projections or simple interest scenarios.
The SAGR Formula
The calculation involves two main steps: finding the total percentage growth and then dividing it by the number of years in the period. The formula is:
SAGR = [ ( ( Ending Value – Beginning Value ) / Beginning Value ) / Number of Years ] × 100
Variables Explained:
Beginning Value: The value at the start of the period.
Ending Value: The value at the end of the period.
Number of Years: The duration over which the growth occurred.
Step-by-Step Calculation Example
Let's say a small business had 1,000 users (Beginning Value) in 2020. By 2023 (3 years later), the user base grew to 1,600 users (Ending Value).
Calculate Total Growth %: (600 / 1,000) = 0.60 or 60%.
Calculate Annual Average (SAGR): 60% / 3 Years = 20%.
In this example, the user base grew at a simple annual rate of 20% per year.
Simple Annual Growth vs. Compound Annual Growth (CAGR)
It is crucial not to confuse SAGR with CAGR. While SAGR takes the simple arithmetic mean of the growth, CAGR calculates the geometric mean, assuming that the growth from previous years is reinvested or compounded.
Use SAGR when you want to know the average rate of return without the effects of compounding, typically for short periods or non-compounding assets.
Use CAGR for investments where earnings are reinvested, or to smooth out the volatility of returns over a longer period.
When to Use This Metric
The Simple Annual Growth Rate is widely used in:
Sales Forecasting: Estimating linear growth for quotas.
Population Studies: Short-term demographic changes.
Simple Interest: Financial products that do not compound interest.