Expansion MRR (Expansion Monthly Recurring Revenue) is a metric used to measure the amount of additional revenue coming from existing customers.
Additional revenue from existing customers is generated through:
• Upsells – like, an upgrade to a more expensive version of your software
• Cross-sells – maybe you offer a unique or high-level industry report for purchase
• Add-ons – widgets, features, and additional trinkets that aren’t a part of a customer’s current subscription
To calculate Expansion MRR for a month, simply add all additional revenue from current customers that occurred within that month. Do not include new bookings/New MRR.
So it might look something like this:
Expansion MRR for January = Upgrades + additional feature purchases + industry report purchases
The formula for calculating Expansion MRR rate
It is typical to calculate Expansion MRR as a percentage rate where you compare the current month to the previous month – allowing you to identify whether or not your existing customers are buying more or less of your products and offerings.
[(Expansion MRR at the end of the month – Expansion MRR at the beginning of the month) / Expansion MRR at the beginning of the month] x 100 = Expansion MMR percentage rate
Let’s say our Expansion MRR for the beginning of January is $1,500 and our Expansion MRR for the end of January is $2,000.
[($2,000 – $1,500)/$1,500] x 100 = 33.3% Expansion MRR rate
The benefits of Expansion MRR
Selling more features to current clients is often more profitable (and easier) to do than acquiring a new customer. Simply because there is no Customer Acquisition Cost (CAC).
Expansion MRR is also an indicator of how happy and loyal your current customers are. If they’re happy with your product and customer success, chances are, they’ll stick around and buy more stuff from you.
It’s also a useful metric for understanding if a new feature launch or upgrade option is relevant to your users. If you build a new feature, you can monitor your Expansion MRR during the roll-out to get an idea if your users appreciate it. If you don’t see an uptick in Expansion MRR, then you might check with your team on ways to improve your sales and marketing processes. Or, work with the design and development team to improve the new feature.
How to use Expansion MRR to expand your business
Monitoring this metric month-to-month will give you a good idea of the rate at which you’re growing and keeping customers happy. But how can you actively improve it?
• Give your customers new features that solve more problems – If you are actively listening to your users and tracking data, then you’ve probably got some good ideas for product improvements and new features. Give em’ what they want!
• Learn how to upsell – Be proactive in marketing your higher subscription models and add-on services. Highlight the benefits your customers will get from upgrading their accounts.
Cross-check your Expansion MRR with Negative Churn
Your Expansion MRR calculations might not always be the most accurate prediction of business growth. Because, what happens if your current customers buy more stuff, and at the same time, you lose a chunk of users?
Churn is the rate at which your subscribers unsubscribe. So, negative churn is a good thing. Your company will have a negative churn rate when current customers stay subscribed and spend more money in the current month than they did in the previous month.
Churn can mean two things: the number of subscribers you lose, or the amount of revenue you lose. For calculating negative churn, use revenue churn.
Calculate negative churn like this:
Negative churn = [New MRR + Expansion MRR] – churn
If you’ve got a super Expansion MRR rate and you’ve also got a negative churn rate, then, your business is expanding and retaining customers.