Expansion revenue

Expansion revenue is the revenue additionally generated from a customers’ initial purchase – mainly in the form of up-sells or cross-sells. During the retention phase, you are making money by keeping your customers but also by enabling them to upgrade to premium plans or by adding additional payment packages to their current plan.

It is much more expensive to win new customers than to keep existing ones, and many Startups fail because of a lack of retaining their customers and not necessarily as a lack of acquiring them. Therefore, it makes sense to focus on retention. Expansion revenue is done through cross-sells, up-sells, or add-ons. This can be by upgrading them to a higher payment plan or by cross-sells, where they get add-ons that further help them succeed. A healthy SaaS business has at least a customer acquisition cost to customer lifetime value of 1:3. This means that customers bring three times the value they initially cost to acquire. Since customers don’t stay with you forever and eventually churn, expansion revenue is a great way to recover your initial investment faster and keeping your customers longer engaged as they receive more value from you.

How to calculate expansion revenue

Calculate expansion revenue by summing the total new MRR from up-sells, cross-sells, and add-ons within a given period of time. Keep in mind not to include revenue from newly acquired customers.

How to increase expansion revenue

• Make upgrading to higher plans easy
• Reward people to upgrade
• Find out what your customers value most and provide cross-selling to increase the value of your service further
• Think about how your customers evolve and where you can provide additional value
• Offer related products
• Develop additional features based on your customer’s needs

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