Expansion Monthly Recurring Revenue (Expansion MRR), or expansion revenue, is a metric used in the software-as-a-service (SaaS) industry to measure the increase in monthly recurring revenue generated from existing customers through upselling, cross-selling, and expansion of product usage.
In SaaS, Expansion MRR is particularly relevant because it represents revenue growth achieved without acquiring new customers. It highlights the ability to maximize revenue potential from the existing customer base and demonstrates the effectiveness of expansion strategies, customer retention efforts, and upselling/cross-selling initiatives.
The formula to calculate Expansion MRR is as follows:
Expansion MRR = Sum of the MRR from expansion activities – Churned MRR
Here’s a breakdown of the components in the formula:
- Sum of the MRR from expansion activities: This refers to the additional monthly recurring revenue generated from upselling, cross-selling, and expansion of product usage by existing customers. It includes revenue from upgrades to higher-priced plans, add-ons, additional licenses, or increased usage of the software.
- Churned MRR: Churned MRR represents the monthly recurring revenue lost due to customer churn. It includes the revenue loss from customers who have cancelled or downgraded their subscriptions during the same period.
By subtracting the churned MRR from the sum of the MRR from expansion activities, you can calculate the net Expansion MRR. A positive value indicates growth in monthly recurring revenue from existing customers, while a negative value implies a net decrease in revenue.
Tracking Expansion MRR over time allows SaaS companies to evaluate the success of their expansion strategies, measure customer retention and expansion efforts, and make informed decisions to optimize revenue growth. It helps identify upselling/cross-selling opportunities, understand customer behavior, and refine expansion initiatives to drive sustainable business growth.
