How to Increase your SaaS Expansion Revenue and Enhance EBITDA?

Read time: 3 minutes.

Welcome to the 38th edition of The Growth Elements Newsletter. Every Monday, I write an essay on growth metrics & experiments and business case studies.

Today’s piece is for 5,100+ founders, operators, and leaders from businesses like Shopify, Google, Sage, Hubspot, Servcorp, Zoho, Apollo and more.

Happy Monday!

The correlation between the Expansion Revenue and EBITDA Enhancement is fragile.

It can suppress the variable cost and improve revenue growth and gross margin if managed correctly.

There are three core methods to increase the expansion revenue.

[1] Selling New Products

► For example, a growth-stage SaaS start-up introduces a new product module priced at $20/user/month.

► Hypothetical Scenario: 50% of existing customers (100 out of 200) adopt the new product.

► Result: Generates an additional $1,000/month ($12,000 annually) in revenue.

► Impact on Net Revenue Retention (NRR): Enhances NPS and retention, contributing to overall growth.

► EBITDA Enhancement: Increased revenue from new product sales positively impacts EBITDA by adding it to the gross profit margin.

[2] Upselling Existing Products

► Example: let’s say the same SaaS start-up introduced a premium package with some advanced features priced at $50/user/month.

► Hypothetical Scenario: 30% of current users (60 out of 200) upgrade to the premium package.

► Result: Generates an extra $3,000/month ($36,000 annually) in revenue.

► Impact on Net Revenue Retention (NRR): Deepens customer engagement and loyalty, improving retention rates.

► EBITDA Enhancement: Upselling existing products increases revenue without significantly increasing variable costs, thereby improving the EBITDA margin.

[3] Adjusting Pricing

► Example: Again, the same SaaS start-up venture implements a 10% price increase across all subscription tiers.

► Hypothetical Scenario: 80% of customers (160 out of 200) accept the new pricing.

► Result: Adds up to MRR by $4,000 ($48,000 annually).

► Impact on Net Revenue Retention (NRR): Aligns pricing with product value, potentially pushing retention rates beyond 100%.

► EBITDA Enhancement: Price adjustments directly contribute to revenue growth and margin expansion, positively impacting EBITDA.

[4] Correlation with NRR

► Effective execution of expansion revenue initiatives strengthens customer relationships and retention rates.

► Hypothetical scenario assumes starting with a net revenue retention rate of 90%.

► Expansion efforts could lead to negative churn, indicating sustainable business growth.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintan Maisuria