In a recent video titled "Without Expansion Pricing You Are Leaving Millions On The Table," Ajit Kumar, co-founder and CEO of Monetize.ly, shares critical insights about a frequently overlooked growth lever for B2B software companies: expansion pricing. Kumar, drawing from his experience consulting with dozens of SaaS companies, explains why focusing on monetizing existing customers becomes increasingly crucial as companies scale beyond the $30-50 million ARR mark.
The Cost Efficiency of Expansion Revenue
One of the most compelling arguments for prioritizing expansion revenue comes down to simple economics. Kumar presents stark figures that highlight the efficiency gap:
"It costs you roughly a dollar and 13 cents in sales and marketing to earn $1 of ARR from a new customer. But to get the same dollar from an existing customer, just 27 cents. That's a 4X difference in efficiency."
This 4X difference in cost efficiency should be a wake-up call for SaaS executives who continue to allocate disproportionate resources to new logo acquisition. When investors evaluate your company, they're increasingly focused on metrics like CAC, burn rate, and growth efficiency—areas where expansion revenue dramatically outperforms new customer acquisition.
The Shifting Balance as You Scale
As SaaS companies grow, the source of their new ARR fundamentally changes. Kumar cites research from Iconiq that illuminates this evolution:
"Based on a study by Iconiq, growth once you hit 50 million ARR, over half of your growth should be coming from expanding into existing customers. By 200 million ARR, that number climbs to two-thirds of new ARR that's coming into your business from existing customers."
This data reveals the natural progression that successful SaaS companies follow. Fighting against this trend by continuing to rely primarily on new logos for growth becomes increasingly difficult and inefficient as you scale.
Net Revenue Retention: The North Star Metric at Scale
For mature SaaS companies, net revenue retention (NRR) emerges as perhaps the single most important metric to track. Kumar emphasizes its impact:
"The data shows that companies with NRR over 120%, this is top quartile, grow twice as fast as those below 100%. And guess what drives NRR? Your expansion strategy."
This stark difference in growth rates highlights why investors place such a premium on companies with strong NRR. It's not just about retaining customers—it's about growing their value over time through effective expansion strategies.
Common Blind Spots in Expansion Strategy
Kumar identifies three critical blind spots that repeatedly hamper effective expansion:
1. New Logo Obsession
Many founders and executives continue to focus almost exclusively on new customer acquisition, even at scale. As Kumar notes with a touch of frustration: "If I had a dollar for every time a founder showed me a deck focused entirely on new logo growth and pricing, I'd be much richer."
2. The Good Cop, Bad Cop Problem
Organizational structure often works against effective expansion:
"Your customer success team wants to be loved. They want to deliver for the customer, so they're terrified to ask for more money. Meanwhile, your sales team is incentivized only for new deals. The result? Who owns expansion?"
This ownership gap means expansion opportunities frequently fall through the cracks, leaving significant revenue untapped.
3. Procrastinating on Pricing
Many companies treat pricing as a static element to be revisited only during major releases:
"Half of SaaS companies admit they only update pricing during major releases. This is a massive strategic error. The best companies I've been working for and consulted with, they revisit their pricing quarterly."
Building Your Expansion Pricing Playbook
To capture the full potential of your existing customer base, Kumar recommends developing a systematic approach to monetizing your install base:
- Align packaging with clear upgrade paths: "If customers get more value, they should pay more," Kumar explains. This applies not just to increased usage but also to access to new features.
- Create dedicated expansion roles: "Someone needs to own this revenue stream with clear quotas and compensation," Kumar advises. Without dedicated ownership, expansion will always remain secondary to new logo acquisition.
- Integrate expansion into customer success processes: "Your CS team should know exactly when a customer is ready for an upsell conversation and they should be able to go over the expansion price list with customers."
- Develop separate price strategies for new vs. existing customers: Kumar notes that you may need different approaches for each segment, stating: "You can't for a few more add-ons, you can't make them pay 50-80% more. You have to slow roll their increase and you have to keep them satisfied."
The Market Context Makes This More Important Than Ever
While expansion revenue is always important, Kumar highlights that current market conditions make it particularly critical:
"When markets tighten, like that's happening right now with high interest rates, new sales slow down, expansion revenue becomes even more of a lifeline. During downturns, your existing customers are your best asset."
In challenging economic environments, your ability to grow revenue from existing customers can be the difference between continued growth and stalled momentum.
The Bottom Line: Expansion Revenue Impacts Valuation
Perhaps most importantly, your approach to expansion revenue directly affects company valuation, fundraising potential, and even personal outcomes:
"If you're past the 30 to 50 million ARR mark and you're not actively monetizing your existing customer base effectively through upsells, cross-sells, strategic price increases, you're leaving tens of millions, if not more, of money on the table. And you're leaving that yearly, so you're missing out on the compound effects of this as well. This has a negative impact on your valuation, your ability to fundraise and even the amount of cash you walk home with at the end of the day of an exit."
Taking Action
Kumar concludes with a simple but powerful question: "Are you leaving expansion revenue on the table? If the answer is yes, it's time to fix that today."
For SaaS executives serious about maximizing growth efficiency and company valuation, developing a systematic approach to expansion pricing isn't optional—it's essential. As companies scale beyond $30-50M ARR, the path to continued growth increasingly runs through existing customers, not just new logo acquisition.
Recognizing and adapting to this reality separates the companies that hit growth ceilings from those that continue to scale efficiently into nine-figure ARR and beyond.
For deeper guidance or support on pricing strategy, we recommend connecting with Monetizely. You may also feel free to schedule a call with the founders.