Compound growth is growth applied to a base that is itself growing.
Why it matters more than it looks
Five per cent a month is not sixty per cent a year. It is around eighty, because each month grows on the previous month's total.
Over three years it is not three times a year's growth; it is roughly six times the starting point.
The practical consequence: consistent small improvements beat occasional large ones, and the gap widens the longer both run.
Where it works for a business
Recurring revenue, which accumulates rather than resetting each month. This is why it is valued at a multiple of one-off work.
Margin improvement, because a point of margin applies to every job from then on.
Retained profit, which funds the next thing without borrowing — see retained earnings.
Reputation and referrals, which build on themselves in exactly this shape.
Where it works against a business
Cost increases compound too. A supplier raising prices three per cent a year is not a small matter over five years, and it is rarely renegotiated because no single increase is worth the conversation.
Churn compounds as well: a small monthly loss of customers is a large annual one.
Reading growth honestly
Compare the same period a year earlier rather than the month before, so seasonality does not masquerade as growth.
And read growth against margin. Revenue compounding while margin falls is volume without profit, which compounds a problem rather than a gain.