Expansion rate = additional recurring revenue from existing customers ÷ their starting recurring revenue
Gross. Churn and contraction stay out.
Why gross, not net
Netting expansion against churn gives you net dollar retention, which is a genuinely important number and a different one.
NDR answers: is the existing base growing? Expansion rate answers: is the expansion motion working? A business can have flat NDR because strong expansion is exactly cancelling heavy churn, and reporting only the net figure hides both facts at once. That is the single most common way a retention problem stays invisible for a year.
Stripe's framing of net revenue retention as churn, contraction, and expansion combined is precisely why the gross component has to be reported separately.
What counts as expansion
- Seat or volume increases on the existing product.
- Tier upgrades.
- A second product, which is also
- Contracted price increases, if you count them. Many teams exclude indexation
because it is not a sales outcome. Either is defensible; state which.
What does not count: new customers, and anything one-time.
Cohort or period
Two honest methods, different questions:
- Cohort: take customers who existed at the start of the period, follow
only them. Stable, comparable, and the right default.
- Period: all expansion in the period over all starting revenue. Faster to
compute, moves with mix.
Mid-period new customers must be excluded from the denominator either way. A growing business that includes them reports falling expansion while expanding.
A worked example
Start the quarter with 300 customers at $1,800,000 ARR. During the quarter those customers add $126,000 of seats and upgrades, 4 downgrade by $18,000, and 9 churn carrying $42,000.
Expansion rate = $126,000 ÷ $1,800,000 = 7.0%
Net movement = (126,000 − 18,000 − 42,000) ÷ 1,800,000 = +3.7%
Both are true. The first says the expansion motion produced 7%. The second says the base grew 3.7%. Reporting only the second makes a strong expansion quarter look mediocre and hides that churn ate almost half of it.
The traps
- Netting against churn and still calling it expansion.
- New customers in the denominator.
- Counting one-time services revenue.
- Reading a single quarter, which is noisy at low customer counts.
- Comparing to a benchmark without matching the cohort method.
Where this sits
Expansion is Measurement in the Tenbound Pipeline Architecture Standard, and it is the clearest example of a number whose value comes from being reported beside another one rather than alone.