How to measure expansion MRR
For every customer who was already paying at the start of the period, compare their MRR at the end with their MRR at the start. Where it went up, the increase is expansion. Add those increases together. Customers whose MRR went down are contraction and belong on their own line; do not net them against expansion.
Expansion comes from four places: a move to a higher plan, more seats or other recurring quantity, a recurring add-on, and higher usage on a metered price. Usage expansion follows whatever rule you use for usage in MRR: if usage is left out of MRR, its growth is left out of expansion too.
Revenue from brand new customers is new MRR, not expansion, even if they bought the top plan. A customer who canceled and came back is usually counted as reactivation, a line of its own.
Expansion MRR = sum of MRR increases from customers who were paying at the start of the period
Expansion rate = expansion MRR ÷ MRR at the start of the period
Worked example
A business starts the month with $28,000 of MRR. During the month 12 customers move from its $50 plan to its $100 plan, 8 customers add 5 seats each at $10 a seat, 6 customers add a $25 monthly add-on, and usage on metered plans (which it counts in MRR) rises by $250.
- Upgrades: 12 × ($100 − $50)
- $600
- Extra seats: 8 × 5 × $10
- $400
- Add-ons: 6 × $25
- $150
- Usage growth
- $250
- Expansion MRR
- $1,400
- Expansion rate: $1,400 ÷ $28,000
- 5.0%
A customer who both added seats and downgraded their plan in the same month counts only by the net change in their MRR, as expansion if it rose and contraction if it fell.
Why expansion revenue matters
Expansion is growth that does not need a new customer. There is no one to find or convince from scratch, so every dollar of expansion usually costs less to win than a dollar of new MRR.
It is also what lifts net revenue retention above 100%. When expansion outweighs contraction and churn, the existing base grows on its own, and every new customer adds to a total that is already rising.
Watching where expansion comes from shows which part of the pricing works. If most of it is seats, customers are rolling the product out to more people; if most of it is add-ons, those add-ons are pulling their weight.
Common mistakes
- Netting expansion against contraction Reporting one net change hides both stories. $1,400 of expansion and $1,000 of contraction is a very different month from $400 of expansion and none lost.
- Counting new customers as expansion A new customer on the top plan is new MRR. Expansion only comes from customers who were already paying at the start of the period.
- Counting one-off purchases A one-time training package or setup fee is revenue, but it does not recur, so it is not expansion MRR.
- Counting a price rise twice A price increase on existing customers is expansion once, in the month it takes effect. It is not expansion again every month after.