Dream with me on this one. A customer loves your SaaS business and your product so much that they want more of it. How do they get it?
They can upgrade their existing plan to a more expensive version of your software with more features, better functionality, deeper integrations, multiple accounts, and higher traffic limits. When they decide to upgrade, they are still a customer. But now, they’re paying you more.
Wahoo! Your MRR is increasing...
Expansion MRR (Expansion monthly recurring revenue) is the amount of additional recurring revenue you receive from current customers through add-ons, cross-sells, and upsells.
To calculate Expansion MRR and to have a meaningful appreciation of how it fluctuates, you’ll want to calculate it and track it month to month to see fluctuations in customer spending.
Here’s a handy formula for monthly MRR growth:
[(End of Month MRR) - (Beginning of Month MRR)] / [(Beginning of Month MRR)] = MRR growth rate
Now let’s use an example:
At the beginning of June, your expansion MRR is $1000. At the end of the month, your expansion MRR is $1500.
$1500 - $1000 / $1000 = 50% expansion MRR growth
Add-ons: Provide an opportunity to unlock a feature or widget that currently isn’t a part of a customer’s plan. I.e. Unlock exit intent as an additional feature.
Cross-sells: Sell a customer on a different type of product. I.e. Sell a masterclass on Facebook ads.
Upsells: A customer upgrades to a more expensive version of your software. I.e. They upgrade from our Pro to a Business plan.
The easiest and most cost-effective ways to expand your existing MRR is by selling to your current customers that you have already spent money on acquiring. They are already warm to your product, and their CAC is effectively $0. Plus, if they love using your product — upgrades are easy.
Not seeing a spike in Expansion MRR every month?
This is a great indicator that you might want to reach out to your customer base to see if there is a new feature they are wishing you would release — or if a change in your plan features and pricing could better meet their needs.
Get inside your customers head!
Asking these questions could make your product a better fit for the market and for your current customers. Building features that your current customer base wants can help solve a lot of your future churn rate problems.