What is Expansion Revenue?

Expansion revenue refers to the additional revenue generated by existing customers, exceeding their initial purchase amount. In simple words, expansion revenue comes from existing customers who spend more than their initial purchase or subscription plan or are growing the value of their contracts via upsells, cross-sells, or renewals with increased value.

Expansion revenue is typically measured as the difference between the current Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) generated by existing customers and the MRR/ARR from the same set of customers in a previous period. It takes into account both the additional revenue generated through upsells, cross-sells, and add-ons, as well as any potential customer churn (cancellation) that might have occurred.

Expansion revenue focuses on increasing revenue from existing customers rather than acquiring new ones. Therefore, continuously monitoring the expansion revenue can lead to sustainable growth compared to constantly acquiring new customers, which is usually much more expensive for the business.