What is Expansion %?
Expansion % is a metric that measures the percentage increase in revenue from existing customers over a certain period of time. In other words, it tracks how much more revenue you're generating from customers who have already signed up for your SaaS product.
Why Expansion % Is Important
Expansion % is a critical metric for SaaS companies for a few reasons. First, it helps you understand how well you're retaining and growing your existing customer base. If your Expansion % is low, it could be an indication that customers are churning or that you're not effectively upselling or cross-selling to them.
Second, Expansion % can be a key driver of revenue growth. While acquiring new customers is important, it's often more expensive than retaining and expanding your existing customer base. By focusing on increasing your Expansion %, you can generate more revenue without incurring the same customer acquisition costs.
Finally, Expansion % can be a key indicator of product-market fit. If your customers are willing to pay more for your product over time, it could be a sign that you're delivering value and meeting their needs.
How to Calculate Expansion %
Calculating Expansion % is relatively straightforward. Here's the formula:
Expansion % = ((Revenue at the end of the period - Revenue at the beginning of the period) / Revenue at the beginning of the period) x 100
For example, let's say your company had $100,000 in revenue from existing customers at the beginning of the year and $120,000 in revenue from existing customers at the end of the year.
Expansion % = (120,000 - 100,000) / 100,000 x 100 = 20%
This means that over the course of the year, you generated 20% more revenue from your existing customers.