Expansion MRR Rate
This article covers the topic of Expansion MRR (Expansion Monthly Recurring Revenue), a part of the key performance indicator MRR. The Expansion MRR rate is a KPI (Key Performance Indicator) that is particularly important in subscription business models and represents a predictable source of income for subscription-based companies.
Definition of the Expansion MRR rate
The MRR describes the recurring revenue per month. The expansion MRR rate is a more advanced metric that reflects new revenue from existing customers per month. Revenue generated from new customers (new MRR) is excluded.
Expansion MRR occurs when subscribers:
- switch from a free plan to a paid plan (Free -> Premium)
- switch from a cheaper to a more expensive plan
- subscribe to paid monthly add-ons
- reactivate a cancelled subscription
Calculation of the Expansion MRR rate
Usually, this metric is calculated as a percentage, comparing the current month to the previous month – so you can see if your existing customers are buying more or less of your products and services.
[(Expansion MRR at the end of the month – Expansion MRR at the beginning of the month) / Expansion MRR at the beginning of the month] x 100 = Expansion MRR percentage
An example:
Let’s assume that the Expansion MRR rate for early January is EUR 1,500 and rate for late January is EUR 2,000.
[(EUR 2,000 – EUR 1,500)/EUR 1,500] x 100 = 33.3% Expansion MRR Rate
The importance of Expansion MRR for the Subscription Economy
It is often easier and cheaper to sell upgrades, add-ons, etc. to existing customers than to acquire new customers. If only for the reason that the CAC (Customer Acquisition Cost) and onboarding costs are eliminated.
The Expansion MRR rate is also an indicator of how satisfied and loyal existing customers are. And satisfied customers are more likely to want to purchase additional features, functions or upgrades.
It’s also a helpful metric for understanding whether the introduction of a new feature or upgrade option is relevant to users. When a new feature is introduced, monitoring the Expansion MRR during the rollout can give an idea of whether and how well it is being received. If there is no uptick in Expansion MRR, then sales and marketing processes can be adjusted or the design and development team can work to improve the new feature.
Expansion Monthly Recurring Revenue – the conclusion:
Expansion MRR is an important metric for subscription companies, but it should always be considered in conjunction with other metrics, such as churn rate If you have a high expansion MRR rate and at the same time a negative churn rate, then your company is expanding and retaining customers.
