Definition

When the Annual Recurring Revenue from an existing customer increases, the proportionate rise is called expansion ARR. Common types of Expansion ARRs are 1) price expansion (ARR increased due to price rise) and 2) volume expansion (ARR increased as the customer uses more of a company’s product or service).

Example

Suppose a client of Vareto - ABC Co. fetches an ARR of $100,000. If Vareto increases the price of its product/service by 10%, the ARR will rise to $110,000. Thus, Expansion ARR = $10,000.

Why it matters

Expansion ARR is important to track as it helps in understanding if a company is easily able to raise the price of its product or services and whether its customers are using more of its product or services.

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