Expansion Revenue
Expansion revenue is additional recurring revenue generated from existing customers through upsells (higher-tier plans), cross-sells (additional products), price increases, and usage-based growth. It is the growth engine that lets companies achieve NRR above 100%.
Why Expansion Revenue Matters for SaaS Companies
Expansion revenue is the cheapest revenue you can get. Selling more to an existing customer costs a fraction of acquiring a new one — typically 5-7x less. For Seed to Series B companies, building expansion into your pricing model is the fastest path to improving unit economics and hitting the 120%+ NRR that makes investors pay attention.
Formula
Expansion MRR = Sum of all MRR increases from existing customers in a period
Benchmark
Expansion should represent 20-40% of new MRR in a healthy SaaS. Top companies generate more expansion than new-logo revenue.
Tools for Measurement
An Operator's Take
At BatchService, expansion revenue was almost accidental — a few customers upgraded when they hit usage limits. There was no strategy. When we restructured pricing tiers around usage milestones and added proactive upgrade triggers (automated alerts when accounts approached 80% of tier limits), expansion MRR grew 3x in two quarters. The key insight: expansion should be engineered into your pricing architecture, not left to chance.
Common Mistakes
What I see go wrong at Seed to Series B companies.
Counting one-time fees (setup, professional services) as expansion revenue. Only recurring revenue increases count.
Relying on expansion to mask poor retention. If GRR is below 85%, expansion is a band-aid, not a growth strategy.
Not designing pricing tiers that create natural upgrade paths. If the gap between your $49 plan and $199 plan is too wide, you are leaving expansion revenue on the table.
Treating upsells as a sales problem instead of a product problem. The best expansion happens when customers outgrow their current tier through natural usage.
What to Do This Week
Concrete steps you can take right now.
Audit your pricing tiers for natural expansion triggers. Is there a clear path from Tier 1 to Tier 2 based on usage or feature needs?
Identify your top 20 accounts by current MRR. For each, assess whether they are using features available on a higher tier.
Implement usage tracking alerts that notify your team (or the customer) when accounts approach tier limits.
Calculate what percentage of your new MRR comes from expansion vs. new logos. If expansion is under 20%, your pricing model needs work.
Related Resources
Try These Tools
Further Reading
Frequently Asked Questions
What is a good expansion revenue rate?
In healthy B2B SaaS, expansion should represent 20-40% of total new MRR. The best companies (Snowflake, Twilio) generate more expansion revenue than new-customer revenue, which is how they achieve 130-160% NRR. For Seed-B companies, aim for at least 15% of new MRR from expansion.
How do you increase expansion revenue?
Four approaches: usage-based pricing tiers that grow with customer adoption, feature gating that incentivizes upgrades, seat-based pricing that expands as teams grow, and strategic price increases for existing customers. The most sustainable approach is building expansion into your pricing architecture rather than relying on sales-driven upsells.
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