What is Expansion Revenue?

Your customers trust you.

They’ve signed contracts, onboarded, and built your product into their workflow.

Now ask yourself: can you capture more revenue from them?

That’s what expansion revenue is. It’s the steady recurring revenue you generate when customers upgrade, add seats, pick up new products, or use your tools more often. For SaaS finance teams, tracking expansion revenue is how you really understand growth.

This guide covers definitions, formulas, approaches, and benchmarks to help you measure expansion revenue. We’ll break down upsells and cross-sells, walk through each calculation, and show how you can track all of it in Runway.

Defining expansion revenue: distinguishing upsell vs. cross-sell

Expansion revenue is extra recurring revenue you get from customers you already have. It doesn’t include new accounts. Focus fully on the growth happening inside your customer base. This means upsells, cross-sells, seat additions, feature upgrades, and usage increases.

You’ll usually see two main flavors of expansion:

Upsells happen when a customer spends more on a product they already use. This could be moving to a higher-tier plan, adding seats, using more, or unlocking premium features. The customer stays on the same product line, but commits more.
Cross-sells happen when a customer starts using something brand new from your portfolio, such as adding a different product or module.

Example of an upsell: Customer upgrades from your $99/month Starter plan to the $299/month Professional plan. That’s $200 more a month. That’s upsell revenue.

Example of a cross-sell: Customer who uses your project management product adds your time-tracking module. That’s cross-sell revenue.

Track seat additions (more users), usage overages (going beyond limits), and price increases (contract escalators, inflation adjustments) too. Each gives you a window into customer action and value.

Track categories separately. If customers upgrade because they see value, that’s very different than growth from just raising prices. One shows you have real product-market fit. The other is a lever you can’t pull too often. Want to see how expansion fits your entire revenue story? See our ARR bridge guide.

Why this metric is important (and how to use it)

Expansion revenue is a core metric for both growth quality and customer health. When your expansion is growing, customers find value and deepen commitment. If it’s lower, you might miss opportunities or your product isn’t showing enough value.

Expansion revenue shapes your forecasts and plans. It relieves pressure on your sales team. When customers spend more, you don’t need to close as many new deals to keep growing. Investors look closely at net revenue retention (NRR) for exactly this reason. NRR includes expansion directly in its formula.

Expansion also guides how you allocate resources:

If upsell is strong, invest more in product education and success.
If cross-sell is the main driver, focus on multi-product go-to-market strategy and account management.
If expansion is lagging, focus on churn prevention and product adoption before you chase new customers.

When it comes to efficiency, expansion revenue is in a league of its own. Acquiring $1 of expansion ARR costs around $0.20–$0.27. Compare that to $1.16 for new customer acquisition. This efficiency adds up and directly improves your LTV to CAC ratio.

Methodologies and approaches for calculation

There’s more than one way to measure expansion revenue. Each gives a fresh angle on how customers grow.

Standard ARR/MRR method

The most common approach is simple. Compare each customer’s current ARR to their ARR from the prior period. Any positive difference is your expansion revenue.

Expansion ARR = Current ARR – Prior period ARR

(for customers where current ARR > prior period ARR)

This method gives you the net increase from everything (upgrades, add-ons, seat growth, and new products) all at once. It’s the basis of the ARR bridge. You’ll see expansion, new business, contraction, and churn together.

Upsell-specific approach

To get just upsells, track revenue growth when customers move to higher-tier plans, add more seats, use more, or unlock premium features, all within the same product.

Tag every revenue movement by type. Roll up upsell revenue separately from other sources. This shows if your product ladder works and if customers grow naturally.

Cross-sell approach

Cross-sell revenue comes when customers buy entirely new products, modules, or services. It helps to have a clear definition of what counts as “new product” versus an in-product upgrade.

As your product line expands, cross-sell often becomes the growth engine. Tracking cross-sell on its own shows you adoption and tells you if bundling strategies work.

Net expansion method

Net expansion is gross expansion minus contraction and downgrades from the same customers. This gives the true incremental revenue from your installed base.

Net expansion ARR = Expansion ARR – Contraction ARR

This feeds directly into net revenue retention. If net expansion is positive, your customers expand faster than they shrink.

Cohort-based expansion analysis

With cohort analysis, you watch how expansion grows in customer groups over time. Group by signup date, deal size, or segment. This let's you understand how expansion velocity shifts during the customer journey.

See, for instance, if your Q1 2026 cohort expands faster in months 6-12 compared to Q1 2025. If so, something probably changed, such as new features, better onboarding, or a shift in your customer profile.

Expansion revenue waterfall

An expansion waterfall breaks expansion revenue into its parts: seat growth, tier upgrades, usage overages, price increases, and new products. You’ll see which levers add the most.

Stack the parts in a chart over time. You’ll quickly see what’s working and where to double down.

Key components and considerations

You need clear rules to track expansion accurately. Here’s what you’ll want to pin down:

Establish a clear taxonomy

Define upsell, cross-sell, price increase, usage overage. Document the terms and get sales, finance, and product teams on the same page. If you use different language, your reports won’t line up and goals will get crossed.

Choose your measurement basis

Pick your measurement basis:

Bookings basis: When contract is amended
Billings basis: When you invoice
Recognized revenue basis: As recognized under ASC 606

Each basis gives you different timing. Most teams use bookings for internal visibility, and reconcile to recognized revenue for GAAP. Need the details? Check our revenue recognition guide.

Handle mid-period expansions

Upgrades and downgrades can happen at any time. Decide if you count the full increase immediately or prorate based on when it lands in your period. Write your approach down for consistent reporting.

Separate organic vs sales-assisted expansion

Organic expansion happens when customers self-serve or upgrade based on triggers. Sales-assisted needs a human hand from account management. Track both to see which channel works best and where to invest.

Distinguish contractual vs usage-based expansion

Contractual expansion comes from new signed deals or renewals. Usage-based expansion rises and falls every month without a long-term commitment. Contractual is more predictable. Treat them differently in your forecasts.

Account for price increases separately

Track price-driven expansion apart from adoption-driven growth. Price increases count as expansion but don’t always show more product usage or customer love. Don’t blend them together in your core growth metrics.

Handle multi-product bundles

If customers expand through bundles or buy standalone products, set clear attribution rules. Otherwise, you might misclassify cross-sell revenue, or miss it entirely.

Link to other core finance and SaaS metrics

Expansion revenue isn’t solo. It ties straight into the metrics that show SaaS business health:

Net revenue retention (NRR): NRR combines expansion, downgrades, and churn. Here’s the formula: NRR = (Starting MRR + Expansion MRR – Contraction MRR – Churn MRR) / Starting MRR × 100 When expansion beats churn, NRR passes 100%. That means you grow even before you land a new deal. See our NRR guide for more.
Gross dollar retention: This tells you how much revenue you hold onto, ignoring expansion. Subtract contraction and churn from starting ARR, divide by starting ARR. Compare both gross and net retention for a full picture of how much expansion covers churn.
Customer lifetime value (LTV): LTV increases when customers expand. Here’s a formula with expansion built in:
LTV = (ARPA × gross margin %) / (churn rate – expansion rate)
If expansion outpaces churn, LTV climbs. This helps you improve LTV to CAC and makes every customer more valuable.
ARR/MRR growth breakdown: You get growth from new business, expansion, contraction, and churn. That’s your ARR bridge. Expansion is often your most cost-efficient growth lever.
Sales efficiency and account management: Expansion should be a main goal for account managers. Track expansion bookings per manager and conversion rates for each opportunity.
Product adoption and usage: Customers who use features, log in often, or hit limits are more likely to expand. Link your product analytics to expansion data to forecast who expands next.
Burn rate and runway planning: Expansion brings high-margin, recurring revenue. Strong expansion gives you more control and stretches your runway.

Benchmarks and industry guidelines

Benchmarks for expansion revenue vary by model and segment. Here’s what defines a strong performance:

Net dollar retention: Best-in-class SaaS hits NRR of 120-140%+. Anything above 110% is strong. Median NRR across B2B SaaS is 106%.
Expansion as a share of new ARR: Expansion often accounts for 20-40% of total new ARR during high-growth years. Larger companies often get more than 50% of new ARR from current customers. Companies over $50M ARR regularly cross that mark.
Upsell vs cross-sell: Upsells usually drive 60-80% of expansion in single-product SaaS. Multi-product leaders often see 30-50% of expansion from cross-sell.
Time to first expansion: Median time to first expansion is 6-14 months for most customers. For usage-based models, SMBs often expand even faster, sometimes only 3-6 months out.
Expansion efficiency: Expansion CAC is typically 20-40% of the cost to acquire a new customer. Existing relationships make these deals faster and less costly.
Price increase contribution: Price-driven expansion is best tracked separately and usually makes up 3-8% of annual expansion.

Common pitfalls to avoid

Finance pros sometimes trip over common issues with expansion revenue. Here’s what to watch for:

Don’t count new contracts with unrelated business units as expansion. If there’s no commercial relationship, treat it as a new deal.
Never double-count expansion at renewal. Split out base retention and the actual expansion value.
Skip non-recurring fees. One-time service, training, or setup fees aren’t expansion (they’re not recurring revenue).
Avoid grouping all expansion together. Track upsells, cross-sells, and price increases separately. Each shows something different.
Net out contraction at each account. Show net movements, not both expansion and contraction in the same period.
Stick with clear, documented definitions. Get everyone aligned to avoid confusion.
Recognize expansion at the correct date. Don’t front-load metrics by crediting full expansion in one month.
Use cohort analysis to spot trends. Don’t miss out on seeing which customer groups expand fastest.
Credit the right driver. Don’t give all credit to account managers when product-led growth triggers the upgrade.
Always reconcile sales-reported expansion with what finance shows in actual revenue numbers. The two should match.

How to track expansion revenue in Runway

Runway helps you build, track, and forecast expansion revenue. It’s flexible, integrates real-time data, and lets teams track the full picture. Here’s a simple setup:

Step 1: connect your revenue data

Connect your revenue system such as Stripe, HubSpot, Salesforce, or any CRM through one of Runway’s 750+ integrations. You’ll get one row per customer or subscription, ARR or MRR over time, plus a customer ID.

If you start from MRR, just add an “Is Active” flag, multiply by 12 to get ARR, and you’re ready to go.

Step 2: classify revenue movements

Create columns to classify every revenue movement. In Runway, use formulas like:

New ARR: if(ARR.last_month == 0 AND ARR > 0, ARR, 0)
Expansion ARR: if(ARR > ARR.last_month AND ARR.last_month != 0, ARR - ARR.last_month, 0)
Contraction ARR: if(ARR < ARR.last_month AND ARR != 0, ARR - ARR.last_month, 0)
Churned ARR: if(ARR == 0 AND ARR.last_month != 0, ARR.last_month, 0)

These tag each change as new business, expansion, contraction, or churn. Use ARR from prior periods as your baseline.

Step 3: aggregate to model-level drivers

Roll up every line-item movement into large buckets:

Starting ARR: sum of all prior ARR
New ARR: sum of new ARR
Expansion ARR: sum of expansion ARR
Contraction ARR: sum of contraction ARR
Churned ARR: sum of churned ARR

Then calculate:

Ending ARR = Starting ARR + New ARR + Expansion ARR + Contraction ARR – Churned ARR

This builds your ARR bridge. Expansion ARR is a key component driving your growth.

Step 4: use dimensions to separate upsell vs. cross-sell

Tag each subscription row with dimensions (customer segment, product, expansion type). Slice your expansion into pieces, like upsells, cross-sells, seat adds, and price increases.

Add an "Expansion Type" column. Possible values: “Upsell - tier upgrade”, “Upsell - seat addition”, “Cross-sell - new product”, “Price increase”.

Then filter results to see what’s growing fastest.

Step 5: forecast expansion revenue

With your bridge in place, add forecasts by bridge component. Forecast expansion using your own success and product usage data, or as a percent of starting ARR based on past trends.

Runway’s scenario planner helps you see ARR impact if expansion moves from 15% to 20%. Compare scenarios to see what happens as variables shift.

Step 6: visualize and share

Drop your ARR bridge into a driver table or a simple chart. Build a dashboard. Share results with your executive team.

Your board wants to see cohort-based views? Runway’s cohort features help you track seat growth, retention, and expansion by customer age or tier. Learn more in our cohort guide.

Kickstart your growth with expansion revenue

Expansion revenue serves as your most efficient growth lever so it pays to track it closely. You can break out upsells and cross-sells while tying those figures back to specific product usage and customer activity. This detailed view turns a static revenue number into an actionable story about customer sentiment and product value.

Your ARR bridge and NRR help you visualize the full financial standing. These metrics let you pinpoint high-performing segments where you can confidently invest more resources. When expansion remains strong, you compound growth alongside customers who already trust your business.

Runway supports this workflow with flexible models and real-time data integrations. Finance teams can connect data sources, bucket revenue streams, and report by dimension to spot trends immediately. You get the insights you need without relying on manual data entry or fragile spreadsheets.

Ready to see modern financial modeling in action? Get started with Runway and discover how tracking expansion transforms your plans.

What is Expansion Revenue (upsell vs. cross-sell)?