Expansion ARR
Growth
Industry:
SaaS
Short Definition
Expansion ARR is the increase in Annual Recurring Revenue (ARR) from existing customers during a period, driven by upsells, cross-sells, seat/license additions, usage tier upgrades, and contractual price increases. It captures growth within the installed base (not new logos).
Short Definition
Expansion ARR is the increase in Annual Recurring Revenue (ARR) from existing customers during a period, driven by upsells, cross-sells, seat/license additions, usage tier upgrades, and contractual price increases. It captures growth within the installed base (not new logos).
Short Definition
Expansion ARR is the increase in Annual Recurring Revenue (ARR) from existing customers during a period, driven by upsells, cross-sells, seat/license additions, usage tier upgrades, and contractual price increases. It captures growth within the installed base (not new logos).
Why it matters for Investors
Growth from the base: Shows how much growth is coming from existing customers (adoption, breadth, stickiness).
Capital efficiency: Expansion is often cheaper than acquiring new logos.
Retention quality: Expansion lifts Net Revenue Retention and offsets Contraction/Churn.
Why it matters for Investors
Growth from the base: Shows how much growth is coming from existing customers (adoption, breadth, stickiness).
Capital efficiency: Expansion is often cheaper than acquiring new logos.
Retention quality: Expansion lifts Net Revenue Retention and offsets Contraction/Churn.
Why it matters for Investors
Growth from the base: Shows how much growth is coming from existing customers (adoption, breadth, stickiness).
Capital efficiency: Expansion is often cheaper than acquiring new logos.
Retention quality: Expansion lifts Net Revenue Retention and offsets Contraction/Churn.
Formula
Where 'n' is the number of existing customers who increased their recurring spend during the period.
Practical Considerations:
Scope: Existing customers only — new logos are New Logo ARR.
Timing: Count when effective (go-live/start date); signed-not-live sits in CARR (Contracted ARR — signed for a future date) until it starts.
Include (Committed & Recurring): Tier upgrades (upsell), new paid modules (cross-sell), more seats/units or higher minimums (add-on), contracted usage-tier upgrades, contractual price escalators (e.g., CPI).
Exclude: Uncommitted/overage usage and one-off credits — these affect revenue, not ARR.
Special cases: Same product/tier & quantity → price ↑ = Expansion, price ↓ = Contraction. Ramps (pre-scheduled step-ups in the contract) → count the step-up on its effective date.
Reporting: Show gross Expansion; report Contraction and Logo Churn separately — the net appears in Net New ARR.
Formula
Where 'n' is the number of existing customers who increased their recurring spend during the period.
Practical Considerations:
Scope: Existing customers only — new logos are New Logo ARR.
Timing: Count when effective (go-live/start date); signed-not-live sits in CARR (Contracted ARR — signed for a future date) until it starts.
Include (Committed & Recurring): Tier upgrades (upsell), new paid modules (cross-sell), more seats/units or higher minimums (add-on), contracted usage-tier upgrades, contractual price escalators (e.g., CPI).
Exclude: Uncommitted/overage usage and one-off credits — these affect revenue, not ARR.
Special cases: Same product/tier & quantity → price ↑ = Expansion, price ↓ = Contraction. Ramps (pre-scheduled step-ups in the contract) → count the step-up on its effective date.
Reporting: Show gross Expansion; report Contraction and Logo Churn separately — the net appears in Net New ARR.
Formula
Where 'n' is the number of existing customers who increased their recurring spend during the period.
Practical Considerations:
Scope: Existing customers only — new logos are New Logo ARR.
Timing: Count when effective (go-live/start date); signed-not-live sits in CARR (Contracted ARR — signed for a future date) until it starts.
Include (Committed & Recurring): Tier upgrades (upsell), new paid modules (cross-sell), more seats/units or higher minimums (add-on), contracted usage-tier upgrades, contractual price escalators (e.g., CPI).
Exclude: Uncommitted/overage usage and one-off credits — these affect revenue, not ARR.
Special cases: Same product/tier & quantity → price ↑ = Expansion, price ↓ = Contraction. Ramps (pre-scheduled step-ups in the contract) → count the step-up on its effective date.
Reporting: Show gross Expansion; report Contraction and Logo Churn separately — the net appears in Net New ARR.
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Expansion ARR |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50k→$68k) | +$18,000 | Expansion | Counts in Expansion ARR |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn | Not Expansion ARR |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Counts in Expansion ARR |
Expansion ARR (March): $33,000 = $18,000 (C) + $15,000 (E)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction: $0
Churn: −$40,000 (D)
Net New ARR: +$17,000 → Ending ARR (Mar 31): $1,200,000 + $17,000 = $1,217,000
Notes:
Expansion counts only increases from existing customers that became effective in March (C, E).
New logos (A, B) are not Expansion; D is Churn, not Expansion.
Ramped step-ups (E) count on the effective date as Expansion (ramp).
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Expansion ARR |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50k→$68k) | +$18,000 | Expansion | Counts in Expansion ARR |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn | Not Expansion ARR |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Counts in Expansion ARR |
Expansion ARR (March): $33,000 = $18,000 (C) + $15,000 (E)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction: $0
Churn: −$40,000 (D)
Net New ARR: +$17,000 → Ending ARR (Mar 31): $1,200,000 + $17,000 = $1,217,000
Notes:
Expansion counts only increases from existing customers that became effective in March (C, E).
New logos (A, B) are not Expansion; D is Churn, not Expansion.
Ramped step-ups (E) count on the effective date as Expansion (ramp).
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Expansion ARR |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50k→$68k) | +$18,000 | Expansion | Counts in Expansion ARR |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn | Not Expansion ARR |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Counts in Expansion ARR |
Expansion ARR (March): $33,000 = $18,000 (C) + $15,000 (E)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction: $0
Churn: −$40,000 (D)
Net New ARR: +$17,000 → Ending ARR (Mar 31): $1,200,000 + $17,000 = $1,217,000
Notes:
Expansion counts only increases from existing customers that became effective in March (C, E).
New logos (A, B) are not Expansion; D is Churn, not Expansion.
Ramped step-ups (E) count on the effective date as Expansion (ramp).
Best Practices
Break it down: Track why expansion happened — more seats, higher plan (upsell), new module (cross-sell), or price step-up (escalator).
Show next to churn: Report Gross Expansion alongside Churn so the net effect is clear.
Cohorts help: Group customers by start month/year (vintage), size, or product to spot patterns.
Pair with Net Revenue Retention: Expansion drives net revenue retention—report them together.
Best Practices
Break it down: Track why expansion happened — more seats, higher plan (upsell), new module (cross-sell), or price step-up (escalator).
Show next to churn: Report Gross Expansion alongside Churn so the net effect is clear.
Cohorts help: Group customers by start month/year (vintage), size, or product to spot patterns.
Pair with Net Revenue Retention: Expansion drives net revenue retention—report them together.
Best Practices
Break it down: Track why expansion happened — more seats, higher plan (upsell), new module (cross-sell), or price step-up (escalator).
Show next to churn: Report Gross Expansion alongside Churn so the net effect is clear.
Cohorts help: Group customers by start month/year (vintage), size, or product to spot patterns.
Pair with Net Revenue Retention: Expansion drives net revenue retention—report them together.
FAQs
Expansion vs. New Logo ARR?
Expansion = existing customers. New Logo = new customers.Expansion vs. Contraction ARR?
Expansion = increases from existing accounts. Contraction = decreases from existing accounts (e.g., downgrades, fewer seats/units or lower minimums, or price-only decreases). (Going to $0 is Logo Churn, not Contraction.)Does usage count?
Only if it’s contractually recurring (e.g., a higher committed minimum or a contracted tier step). Pure pay-as-you-go overage with no higher commitment ≠ ARR.Can Expansion ARR be negative?
No. Reductions are reported as Contraction ARR (or Logo Churn ARR if to $0).Why separate Expansion from Net New ARR?
To see where growth comes from (base vs. new). Net New ARR = New Logo ARR + Expansion ARR − Contraction ARR − Logo Churn ARR.Are reactivations Expansion?
No. A previously churned customer returning is typically tracked as Reactivation/Resurrected ARR (or New Logo ARR per policy), not Expansion.
FAQs
Expansion vs. New Logo ARR?
Expansion = existing customers. New Logo = new customers.Expansion vs. Contraction ARR?
Expansion = increases from existing accounts. Contraction = decreases from existing accounts (e.g., downgrades, fewer seats/units or lower minimums, or price-only decreases). (Going to $0 is Logo Churn, not Contraction.)Does usage count?
Only if it’s contractually recurring (e.g., a higher committed minimum or a contracted tier step). Pure pay-as-you-go overage with no higher commitment ≠ ARR.Can Expansion ARR be negative?
No. Reductions are reported as Contraction ARR (or Logo Churn ARR if to $0).Why separate Expansion from Net New ARR?
To see where growth comes from (base vs. new). Net New ARR = New Logo ARR + Expansion ARR − Contraction ARR − Logo Churn ARR.Are reactivations Expansion?
No. A previously churned customer returning is typically tracked as Reactivation/Resurrected ARR (or New Logo ARR per policy), not Expansion.
FAQs
Expansion vs. New Logo ARR?
Expansion = existing customers. New Logo = new customers.Expansion vs. Contraction ARR?
Expansion = increases from existing accounts. Contraction = decreases from existing accounts (e.g., downgrades, fewer seats/units or lower minimums, or price-only decreases). (Going to $0 is Logo Churn, not Contraction.)Does usage count?
Only if it’s contractually recurring (e.g., a higher committed minimum or a contracted tier step). Pure pay-as-you-go overage with no higher commitment ≠ ARR.Can Expansion ARR be negative?
No. Reductions are reported as Contraction ARR (or Logo Churn ARR if to $0).Why separate Expansion from Net New ARR?
To see where growth comes from (base vs. new). Net New ARR = New Logo ARR + Expansion ARR − Contraction ARR − Logo Churn ARR.Are reactivations Expansion?
No. A previously churned customer returning is typically tracked as Reactivation/Resurrected ARR (or New Logo ARR per policy), not Expansion.
Related Metrics
Commonly mistaken for:
Cross-sell ARR (component of Expansion ARR)
Expansion Bookings (signed but not effective)
New Logo ARR (ARR from new customers)
Related Metrics
Commonly mistaken for:
Cross-sell ARR (component of Expansion ARR)
Expansion Bookings (signed but not effective)
New Logo ARR (ARR from new customers)
Related Metrics
Commonly mistaken for:
Cross-sell ARR (component of Expansion ARR)
Expansion Bookings (signed but not effective)
New Logo ARR (ARR from new customers)
Source of:
Components:
Index