Expansion ARR (Expansion Annual Recurring Revenue) is the increase in recurring subscription revenue from existing customers over a given period. It includes revenue gained through upgrades, add-ons, more seats, higher usage commitments, or cross-sells that raise the customer’s annualized recurring value beyond their starting ARR.
What Expansion ARR Includes
Expansion ARR typically comes from changes within an existing customer relationship, such as:
- Upsells: moving to a higher plan or tier
- Seat expansions: adding users or licenses
- Add-ons: purchasing additional modules, features, or products sold as recurring
- Consumption commitments: increasing a recurring usage commit or minimum spend
- Cross-sells: adding another recurring product line under the same account
Expansion ARR usually excludes:
- New customer ARR (first-time buyers)
- One-time fees (implementation, services, training) unless they are recurring by contract
How Expansion ARR Is Calculated
A common approach is:
- Expansion ARR = Σ (Current ARR for existing customers − Starting ARR for those customers), counting only positive changes
Organizations often calculate it monthly or quarterly and reconcile it with:
- Contraction ARR (downgrades or seat reductions)
- Churned ARR (cancellations)
These components feed metrics like Net New ARR and Net Revenue Retention (NRR).
Why Expansion ARR Matters
Expansion ARR is a major driver of efficient growth, especially in subscription businesses:
- Improves growth without proportional CAC: expanding existing accounts often costs less than acquiring new ones
- Signals product value: growth in seats or modules suggests adoption and ROI
- Stabilizes forecasting: expansion can offset churn and smooth revenue volatility
- Guides customer success strategy: highlights where adoption programs lead to revenue outcomes
- Supports AI-assisted targeting: usage and engagement signals can identify accounts most likely to expand and trigger playbooks
Expansion ARR is most meaningful when tied to clear account hierarchies and clean subscription data to avoid double counting.
Frequently Asked Questions
Is Expansion ARR the same as upsell ARR?
Upsell ARR is one type of expansion. Expansion ARR is broader and can include seats, add-ons, and cross-sells that increase recurring value.
Does Expansion ARR include price increases?
It depends on reporting rules. Some teams count contractual price uplifts as expansion, while others report them separately.
How is Expansion ARR different from NRR?
Expansion ARR is a dollar amount of increase from existing customers. NRR is a rate that combines expansion, contraction, and churn relative to starting revenue.
What is the difference between Expansion ARR and bookings?
Bookings reflect contracted value signed. Expansion ARR reflects the annualized recurring value of the expansion, often aligned to when the recurring term starts.
Can consumption-based businesses track Expansion ARR?
Yes, many use committed recurring amounts or annualized baselines for usage, then track increases in those commitments as expansion.
