Definition
Expansion revenue is the additional recurring revenue earned from existing customers beyond their original contract value. It comes from three sources: upsells (moving to a higher plan), cross-sells (purchasing additional products), and add-ons (buying supplementary features or capacity). A company billing $100K/month that grows to $120K/month from the same customer base has $20K in expansion revenue.
Unlike new logo revenue, which requires acquiring customers from scratch, expansion revenue builds on an existing relationship where the customer already trusts your product. This makes it significantly cheaper to capture -- typically 5-7x less expensive than acquiring a new customer of equivalent value.
Why It Matters for Product Managers
Expansion revenue directly shapes what PMs should prioritize building. If your largest accounts consistently hit usage ceilings, that signals investment in higher-tier features or consumption-based pricing. If customers frequently request adjacent capabilities, that points toward cross-sell product opportunities.
Consider Slack's growth model: individual teams adopt the free tier, then upgrade to Pro for compliance and admin features, then expand to Enterprise Grid as the company standardizes. Each transition represents expansion revenue that Slack's PM team designed into the product architecture from the start. The upgrade triggers are deliberate product decisions about where to place tier boundaries.
PMs who track expansion revenue by feature or plan tier can identify which product investments actually drive revenue growth versus which ones customers appreciate but won't pay more for. This distinction matters when defending roadmap priorities to leadership. You can use the MRR/ARR Calculator to model how expansion impacts your recurring revenue trajectory.
How It Works in Practice
Common Pitfalls
Related Concepts
Expansion revenue connects directly to churn rate -- the two are opposing forces that determine whether your existing customer base is growing or shrinking. Understanding ARR/MRR is essential for tracking expansion revenue as a percentage of your recurring revenue base, and LTV increases substantially when expansion revenue outpaces contraction.