The expansion MRR rate is the rate at which a company's expanding monthly recurring revenue grows from month to month. This can be measured by looking at the MRR growth rate of existing customers or the percentage of customers growing their subscriptions.
For a software as a service (SaaS) company, the expansion MRR rate is an important metric to track because it indicates whether customers find value in the product and use it more over time. A high expansion MRR rate indicates that the product is valuable to customers and that they use it more over time.
There are a few reasons why this metric is so crucial:
1. It's a leading indicator of future growth. The expansion MRR rate is a good predictor of future revenue growth, as it measures the amount of revenue that is coming in from existing customers. This is important because it shows that the company can retain and grow its customer base, which is essential for long-term success.
2. It's a measure of customer satisfaction. The expansion MRR rate is also a good indicator of customer satisfaction, showing that customers are happy with the product or service and willing to pay more. This is important because satisfied customers are more likely to continue using the product or service and to recommend it to others.
3. It's a measure of product/market fit. The expansion MRR rate is also a good indicator of product/market fit, as it shows that the company has a product or service that meets the needs of its target market. This is important because it means the company is more likely to succeed in the long term.
To calculate your expansion MRR rate, take your expansion MRR at the end of the period and divide it by your beginning-of-period expansion MRR. This will give you a percentage that you can use to compare growth month over month.
Assuming you have your expansion MRR for the current month and the previous month:
(Current month expansion MRR - Previous month expansion MRR) /Previous month expansion MRR
This will give you absolute growth in expansion MRR from one month to the next. To get the expansion MRR growth rate, you take this number and divide it by the previous month's expansion MRR. The newly formed number will give you a percentage that you can use to compare growth month over month.
The advantages of having a high expansion MRR rate are many and varied, but some of the most notable benefits include the following:
1. More customers will stick around longer, resulting in more revenue overall.
2. Customers who get more value from your product will be happier and more likely to refer others.
3. A more predictable revenue stream makes it easier to plan for future growth.
The disadvantages of having a high expansion MRR rate are also many and varied, but some of the most notable drawbacks include the following:
1. It cannot be easy to maintain a high expansion MRR rate over time.
2. A high expansion MRR rate can strain your customer support team.
3. A high expansion MRR rate can signal that your pricing is too low.
Industry benchmarks for expansion MRR rate vary depending on the specific industry. However, a good benchmark is a 10% expansion MRR rate. This means that for every $1 of new MRR, an additional $0.10 is generated in expansion MRR. This benchmark can be used as a goal to strive for when expanding a business.