Metrics for tracking expansion revenue

Sustaining scalable growth requires maximizing the recurring value that’s been extracted from existing customer accounts beyond baseline user acquisition. This relies on tracking metrics quantifying revenue expansion along multiple dimensions—from aggregate portfolio health signals such as renewal rates to usage-based indicators that point to granular upsell opportunities. Let’s explore some key metrics that will help guide your growth decisions.

Annual recurring revenue

Annual recurring revenue (ARR) represents the annual value expected from predictable, recurring customer subscriptions. This core metric forecasts the sustainability of long-term subscription income that’s immune to seasonal swings. For SaaS businesses, tracking ARR growth demonstrates scalability efficiency needing lower incremental sales costs to perpetuate revenue growth fueled primarily by renewals.

Real-world example

Cybersecurity leader CrowdStrike demonstrates the scaling power of ARR expansion through land-and-expand approaches to upselling additional endpoint protection modules and platform capabilities. By maintaining ARR growth rates above 60% annually, CrowdStrike is on track to hit $5 billion in ARR by 2026, despite supporting over 19,000 subscription customers already, underscoring substantial repeat revenues through renewals.

Analyzing incremental ARR (iARR) from subscription upgrades or expansions indicates success in capturing greater customer wallet share. For example, DataDog generates over 40% of ARR from iARR channels, thus highlighting six-figure expansion deals within crowded Fortune 500 IT environments by interoperating across existing toolchains. This interoperability earns budget share gains from customer technology modernization initiatives.

Average revenue per user

Average revenue per user (ARPU) quantifies the average recurring income contribution from each user account over time. Growth signals, when applied judiciously, enhance monetization capabilities and help with avoiding compromising product-market fit. Top vertical SaaS firms such as Adobe, Autodesk, and Intuit demonstrate mastery in sustaining 20%+ net ARPU gains annually over decades while upholding 90%+ gross retention rates through heightened pricing power linked to differentiated value creation and loyalty cultivation.

Real-world example

Feedback collection platform SurveyMonkey has optimized packaging to balance broad self-serve access with encouraging paid conversions recognizing most value gains for enterprise users. They offer professional plans for $384/year, which provides researchers with advanced analytics such as benchmarking, image embedding, and data exports that lightweight advantage packages lack to spur 18% year-on-year ARPU jumps.

Analyzing usage patterns reduces customer churn risks when expanding monetization. Flagging accounts exhibiting declining engagement following price hikes allows proactive win-back campaigns to reverse potential losses. Meditation app Calm discovered a slight drop in sessions among long-tenured users after adjusting their annual pricing to $70, 26% higher than it was previously. By targeting high-risk subsets with one-time loyalty discounts, Calm restored retention levels while securing expanded budget share from devotees.

Renewal rates

Tracking renewal rates provides essential visibility into subscriber revenue retention, which is critical for predictable growth. While SaaS averages around 90%+ gross annual retention, which denotes seat-level persistence, net dollar retention rates accurately reflect adherence by factoring subscription value changes through expansions or downgrades. For leading platforms, this hovers closer to 110-120%, highlighting successful upselling and land-expand approaches to increasing wallet share.

Real-world example

Collaboration software firm Atlassian analyzes net renewal rates across products, cohorts, and territories to diagnose expansion revenue performance. Identifying churn risks from Jira license downgrades allows account managers to intervene, demonstrate the latest workflow enhancements, or bundle complementary tools such as Confluence wikis to showcase additional value from broader adoption. Such data-informed cross-sells have lifted Atlassian’s net renewal rate to over 115%, helping them secure $2+ billion in highly recurring subscription income.

Expansion monthly recurring revenue

Expansion monthly recurring revenue (MRR) tracks growth driven by extra purchases from existing accounts such as discretionary upsells or add-ons. These signals reveal customer development efficacy, thus translating retention into high-yield recurring income streams.

Real-world examples

Marketing automation platform HubSpot closely correlates expansion MRR growth with the maturity of customer onboarding processes and account management prioritization frameworks being implemented across regional teams. Quantifying expanded deal sizes, shortened sales cycles, and enrollment into premium tiers over-index against benchmarks allows best practices to be diagnosed, which allows additional wallet share to be collected through prompt follow-on sales conversations during optimal satisfaction windows.

Collaboration tools provider Slack analyzes expansion MRR monthly to assess enterprise plan changes, reviewing sales pipeline growth and proactive support case trends to anticipate revenue expansion/contraction risks from large accounts.

Key lesson: Tracking expansion MRR provides precise visibility into recurring revenue gains from upsells and add-ons, enabling data-backed iterations.

Product usage data

Analyzing usage and adoption metrics helps in identifying underutilized capabilities and power users demonstrating deeper platform needs. These insights feed personalized expansion initiatives and premium packaging development.

Real-world example

By analyzing usage curves, content collaboration platform Notion uncovered an extremely engaged subset of users building internal wikis and knowledge management systems atop tools originally positioned for personal note-taking features. This revealed a clear appetite for enhanced permissions, access controls, and content organization capabilities for scaling usage across teams and business units. Notion responded by launching Team and Enterprise packages priced from $8 to $20 per seat to align value to usage. By doing this, they have converted over half of their highest traction accounts over the past year.

Account-based benchmarks

Account-based benchmarks empower the segmentation of customers by revenue tier or persona to define expansion goals tailored to wallet share potential, thus informing cross-sell prioritization. Comparing actuals against benchmarks signals accounts for management optimization needs.

Real-world examples

Monetization platform Patreon sets tiered 12-month expansion goals for creators that have been onboarded to basic versus pro tiers based on category earnings benchmarks. Identifying gaming streamers or podcasters scaling above analogous creator revenue thresholds informs account manager assignments to accelerate support resources and merchandising partnerships for those exceeding expansion benchmarks.

Key lesson: Account-based benchmarking allows tailoring personalized expansion objectives grounded in cohort analysis.

In aggregate, these metrics supply a multifaceted view into optimizing recurring customer value. They constitute the analytics backbone, thus enabling data-backed growth. By maintaining a sharp focus on keeping customers happy and engaged, product teams can create space to drive more revenue from them through pricing enhancements, new premium offerings, and various monetization channels.

For companies whose products are sold on a per-user basis, it is critical to choose the right ARPU frameworks so that growth product managers can nurture a segment of brand devotees and turn it into a thriving source of recurring income. Let’s dive deeper into this metric and its variants to understand how we can maximize our ability to monetize user engagement effectively and drive sustained revenue growth.

The significance of ARPU in PLG for user-based sales models

Optimizing ARPU has emerged as an imperative focus area for PLG companies to drive sustainability through maximizing user lifetime value. However, to strategically prioritize ARPU gains, growth product managers must first grasp how this metric quantifies user value across critical business dimensions.

This section will help you clarify ARPU’s relationship with user acquisition costs, lifetime value projections, and underlying health signals, all of which are vital for data-backed growth decisions.

Key ARPU variants

As highlighted previously, ARPU represents the average recurring revenue generated per user across a defined customer cohort, typically calculated over a monthly or annual period. For software and other digital offerings, this closely relates to average pricing levels.

Here are some common ARPU variants:

• Average revenue per annual/active/all user (ARPAU)
• Average revenue per monthly active user (ARPMAU)
• Average selling price (ASP)
• Average revenue per user (ARPU) growth, which signals business health

As a leading indicator of customer value expansion, ARPU growth points to improved monetization capabilities and signals business health. ARPAU lifts indicate greater wallet share capture from existing customers. This may unlock additional funding due to perceived traction.

For example, a 20% annual jump in net ARPAU expanded Shopify’s estimated market size, boosting their valuation despite no change in user base size.

ARPU quantifies retention potential

Higher ARPU signifies elevated switching costs for customers and likely satisfaction with offerings creating value. This directly bolsters retention and customer lifetime value. Users generating over 20% above the baseline ARPU have shown 60%+ higher retention rates for SaaS platforms.

ARPU impacts customer acquisition cost payback

With the customer acquisition cost (CAC) payback period calculated by dividing CAC by gross margin ARPU, boosting ARPU compresses the payback period. This improves capital efficiency, which is vital for scalability. For example, increasing ARPU by 20% directly shrinks CAC payback time, allowing for quicker growth.

ARPU benchmarks by industry

ARPU levels and growth vary widely across verticals. For US SaaS firms, the average ARPAU lies between $150-$250, though outliers such as Adobe at $600+ skew higher. Cloud infrastructure providers see ARPAUs over $1,000. Windows 365 quotes $166 ARPMAU for desktop subscriptions while music streaming ARPMAU hovers below $5. Benchmarks guide the goal setting.

This background on the different ARPU definitions ties to critical metrics such as customer lifetime value and CAC, benchmark levels across verticals, and the health signals that are sent by ARPU expansion, which equip growth product managers to aptly prioritize and measure ARPU gains.

The next section will build upon this ARPU context by arming growth product managers with actionable monetization frameworks to increase wallet share.