Quick Answer (TL;DR)
Expansion Rate measures percentage of revenue gained from upsells/cross-sells. The formula is Expansion revenue / Starting MRR x 100. Industry benchmarks: >5% monthly for top SaaS. Track this metric when measuring growth from existing customers.
What Is Expansion Rate?
Percentage of revenue gained from upsells/cross-sells. This is one of the core metrics in the retention metrics category and is essential for any product team serious about data-driven decision making.
Expansion Rate is a direct measure of whether your product continues to deliver value over time. Retention is the single most important category for long-term product success because it compounds: small improvements today create massive differences over months and years.
Understanding expansion rate in context --- alongside related metrics --- gives you a more complete picture than tracking it in isolation. Use it as part of a balanced metrics dashboard.
The Formula
Expansion revenue / Starting MRR x 100
How to Calculate It
Suppose you measure expansion revenue at 500 and starting mrr at 2,000 in a given period:
Expansion Rate = 500 / 2,000 x 100 = 25%
This tells you that one quarter of the base is converting or meeting the criteria.
Benchmarks
>5% monthly for top SaaS
Benchmarks vary significantly by industry, company stage, business model, and customer segment. Use these ranges as starting points and calibrate to your own historical data over 2-3 quarters. Your trend matters more than any absolute number --- consistent improvement is the goal.
When to Track Expansion Rate
When measuring growth from existing customers. Specifically, prioritize this metric when:
You are building or reviewing your metrics dashboard and need retention indicators
Leadership or investors ask about retention performance
You suspect a change in product, pricing, or go-to-market strategy has affected this area
You are running experiments that could impact expansion rate
You need a quantitative baseline before making a strategic decision
How to Improve
Optimize the numerator. Increase the number of users or events in expansion revenue through better UX, clearer CTAs, and reduced friction in the conversion path.
Qualify the denominator. Ensure starting mrr represents the right audience. Better targeting means a higher conversion rate.
Invest in proactive customer success. Do not wait for users to complain or churn. Use leading indicators (declining usage, support tickets, low NPS) to intervene early with at-risk accounts.
Continuously deliver value. Retention requires ongoing value delivery, not just an initial aha moment. Ship improvements, communicate them, and ensure users see the product evolving to meet their needs.
Run cohort analysis regularly. Compare retention curves across signup cohorts to determine whether product changes are improving or hurting long-term retention.
Common Pitfalls
Ignoring sample size. Small sample sizes produce volatile rates that do not reflect true performance. Ensure you have statistically significant data before drawing conclusions or making changes.
Looking only at aggregate retention. Blended retention hides critical differences between customer segments, cohorts, and plan tiers. Always segment your retention analysis.
Measuring without acting. Tracking this metric is only valuable if you have a process for reviewing it regularly and a playbook for responding when it moves outside acceptable ranges.
Related Metrics
Contraction Rate --- percentage of revenue lost to downgrades
Time to Churn --- average duration before a customer churns
Resurrection Rate --- percentage of churned users who return
Retention by Cohort --- retention segmented by signup date
Product Metrics Cheat Sheet --- complete reference of 100+ metrics