Expansion MRR rate

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What is the expansion MRR rate?

The expansion MRR rate is a measure that indicates how quickly a company’s monthly recurring revenue (MRR) grows from month to month. Expansion MRR is a portion of the company’s monthly recurring revenue (MRR) related to additional revenue generated by current customers. In other words, expansion MRR does not include revenue from new clients.

Expansion Revenue is a vital growth statistic that grows in importance as your customer base grows. Incorporating expansion possibilities into your customers’ purchasing journeys is critical, as this alone will help you resist the downward impacts of Gross Churn.

The following actions typically create additional revenue that adds to the expansion MRR:

  • Upselling: Customers purchase a more expensive version of a product. In addition, free-to-paid conversions are also considered in upselling.
  • Cross-selling: Customers purchase additional products or services related to another existing product or service they purchase.
  • Add-ons: Customers may also purchase recurring add-ons for an existing product or service.

There is no standard benchmark for the rate of MRR expansion, as there is for many other SaaS metrics. Generally, each company evaluates its expansion MRR rate compared to its previous historical performance and the industry average. It should be noted that every company strives to raise its expansion MRR and maintain consistent growth rates of the metric.

The key advantage of Expansion MRR is that the organisation incurs no additional costs to obtain higher revenue. In other words, no Customer Acquisition Costs (CAC) are associated with Expansion MRR. This higher revenue from existing customers reflects customer happiness and loyalty, which is beneficial in the long run because it increases customer lifetime value (LTV). An increase in the number shows that your existing client base’s revenue is growing, which is a good indicator. However, this statistic should be used more than just to assess customer happiness because it can be misleading, especially if you lose many consumers month after month.

Churn can refer to two things: the number of customers lost (customer churn) and the amount of income lost (revenue churn) (revenue churn). However, negative churn is beneficial. When customers stay subscribed and spend more money in the current month than they did the previous month, your company will have a negative churn rate.

Monitoring Expansion MRR will assist you in better understanding client satisfaction.

    • Understanding your customers’ wants in terms of product characteristics is powerful. Monitoring your customer data on a regular basis and listening to your consumers might help you experiment with new features that may solve your customers’ problems. This will also help you with upselling initiatives and keep consumer downgrades at bay. Upselling will also assist in increasing negative churn.
    • Making upgrades more appealing by offering discounts and trial periods. However, before giving out a chunk of your goods for free, check with your financial management to see how your cash flow statement is doing.
    • Utilise client feedback. Proactively sell your premium subscription models and add-on services by emphasising the client’s pain points and problems you will solve.

As a result, keeping an eye on your churn while reviewing this measure is critical.

How to measure expansion MRR rate?

Expansion MRR is often calculated as a percentage rate that compares the current month to the prior month, allowing you to determine whether or not your existing consumers are purchasing more or less of your products and solutions.

Expansion MRR rate formula

MRR rate formula

It’s essential to solely account for income generated through upgrades, cross-sells, and add-ons when computing the expansion MRR rate. Subtract the total expansion MRR at the end of the month from the total expansion MRR at the beginning of the month to calculate the month-over-month revenue earned through expansion (i.e., upsells, cross-sells, and add-ons). Then, to calculate a percentage, divide the result by the expansion MRR from the beginning of the month and multiply by 100.

SaaS expansion MRR rate calculation example

If the expansion MRR at the beginning of the month is $1500 and then $2000 at the end of the month, the expansion MRR rate would be 33%.

($2000 – $1500) / $1500 X 100 = 33%

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Expansion MRR rate

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