How to Calculate a Geometric Mean with GEOMEAN

Average growth rates correctly with GEOMEAN — the compound annual growth rate that a simple average overstates.

You will learn to

• Calculate a compound average growth rate with GEOMEAN
• See how much the arithmetic mean overstates growth
• Project next year from the geometric average

How it works

When values compound — investment returns, revenue growth, population change — the right average is the geometric mean. Convert each rate to a growth factor (1 + rate), take GEOMEAN of the factors, and subtract 1: =GEOMEAN(1+C3:C8)-1. The result is the compound annual growth rate (CAGR).

A simple AVERAGE of the rates always overstates compound growth when the rates vary: +50% followed by −50% averages 0% but leaves you 25% poorer. GEOMEAN needs positive values, which is why you work with factors rather than the raw percentages.

=GEOMEAN(1+C3:C8)-1