The beauty of the subscription model is that for the first time in our history we have a business model where relationships are built directly into the revenue model. If a customer continues to like you, they aren’t going to churn, and they may even buy more of what you’re selling, so to put it bluntly more is almost always better when it comes to expansion revenue.
On this episode of The ProfitWell Report, Chris Parsons, CEO at Insynqk, asks us how much expansion revenue a company should have in order to succeed. Let’s get some more specifics though by answering Chris’s question using data from 5 thousand companies and three hundred thousand subscription buyers.
*****We will only be posting a few of these episodes on the blog, which means if you want to make sure you don't miss an episode of this series you must subscribe separately below****
The most efficient companies when looking at LTV to CAC ratios are fueling that efficiency mainly off expansion revenue.
Note that companies who have an LTV to CAC between three and five are seeing a median of just under 20% expansion revenue as a proportion of their total revenue. Those with an LTV to CAC above five are pushing above 30% in terms of expansion revenue.
Efficiency doesn’t tell the whole story though. Growth is important, and if you’re efficient you’re not always investing in growth. Interestingly enough though, companies growing in the top 40% of their cohorts are seeing at least roughly 20% of their revenue coming from expansion and a high end of nearly 40% expansion revenue.
So to be blunt - more, more, and more is really an answer of at least 20% and really you should be shooting for closer to 30%.
Of course, this data is highly correlative, because to get proper expansion revenue at these levels, you need good pricing, good product, and ultimately to be using a value metric. Yet, 20 to 30 percent can act as a solid north star to benchmark your efforts going forward. That being said, the answer is probably still more, more, and more.
Well, that's all for now. If you have a question, ship me an email or video to firstname.lastname@example.org and let's also thank Chris for sparking this research by clicking the link below to share and give him a shoutout. We’ll see you next week.