Expansion MRR Growth Rate
Date created: Feb 12, 2020 • Last updated: Feb 14, 2020
What is Expansion MRR Growth Rate?
Expansion Monthly Recurring Revenue (MRR) Growth Rate is the velocity at which additional revenue from existing customers is being added to the business, expressed as a percentage of total MRR. Expansion MRR Growth Rate is often cited as a monthly rate, but it's also possible to express it using an annual timeframe, for example, "Our Expansion MRR Growth Rate for April was 5%" or "Our Expansion MRR Growth Rate was 80% last year".Alternate names: Expansion MRR Rate, Expansion Revenue Growth Rate
How to calculate
A recurring revenue business has MRR of $500K at the beginning of the month. Throughout the month, the business realizes an additional $15K of Expansion MRR from its existing customers (via up-sells, cross-sells, and add-ons). Sum(Expansion MRR in period) / Sum(total MRR beginning of period) $15K / $500K = 3% Expansion MRR Growth Rate per month
Expansion MRR Growth Rate
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More about this metric
There are several ways to express Expansion MRR, for example:
- I could say that we generated $8,000 in Expansion MRR last month (which would be the absolute value); - I could say that Expansion MRR this month improved by 20% vs last month (a month over month change); - I could say that 50% of our top line revenue came from Expansion MRR this month (i.e., a ratio of New to Expansion Revenue); - or, using the Expansion MRR Growth Rate metric, I can say our monthly Expansion MRR Growth Rate was 5% (which is a true growth rate, looking at incremental growth as a percentage of total MRR).
Expansion Revenue is a key growth metric and becomes more and more powerful as you grow your customer base. It's also vital to build expansion opportunities into your customer's buying journey, as this, and this alone, is essential to help you overcome the downward forces of Gross Churn.
It's well known that selling to existing customers is significantly less costly than acquiring new customers. KeyBanc's Annual SaaS survey concluded that cross-sells and add-ons cost about 1/4 of what $1 of new revenue costs, and natural plan expansions cost as little as 1/5 of what it costs to acquire a new customer.
This all impacts your CAC Payback Period - your time to profitability - which for any cash strapped startup is a key early survival tactic. And, of course, if you can increase the amount each customer is paying you, then Lifetime Value (LTV) increases as well.
The most efficient and fastest growing companies spend a lot of time understanding how to benefit from healthy Expansion MRR. Everything is easier when you can count on your customer base contributing to your top line. Best in class companies are achieving Expansion MRR Ratios that are 20% to 40% of top line revenue each month.