Net Expansion

Net Expansion refers to the growth or contraction of revenue from existing customers during a specified period, accounting for both customer churn and revenue from upsells, cross-sells, or new purchases. This metric is particularly important for subscription-based or recurring revenue businesses as it helps gauge customer satisfaction, retention, and the ability to grow revenue within the existing customer base.

Net expansion can be calculated as:

Net Expansion = (Revenue at End of Period from Existing Customers - Churned Revenue + Expansion Revenue) / Revenue at Start of Period x 100

A net expansion rate greater than 100% indicates that the business is expanding revenue from existing customers, while a net expansion rate of less than 100% signals revenue contraction or that the business is losing revenue faster than it can gain from its customer base.