Your best customers from two years ago are still on the same plan they started with. They've grown 3x, their usage has expanded significantly, but their spending with you is unchanged.
You're delivering more value and capturing none of it.
This is the expansion revenue gap: customers getting more successful with your product while your revenue stays flat. It's especially painful because acquiring these customers was expensive, but expanding them should be high-margin growth.
The problem isn't that customers won't spend more. It's that your pricing model doesn't create natural expansion paths.
Here's how to design pricing that grows with your customers.
The Three Expansion Revenue Mechanisms
There are only three ways customers expand revenue:
- Usage expansion: They consume more of what they already have (more users, more volume, more features)
- Product expansion: They buy additional products/modules beyond initial purchase
- Value expansion: They upgrade tiers to access capabilities they didn't need initially
Your pricing model should enable at least two of these, ideally all three.
Pricing models mapped to expansion mechanisms:
- Per-user pricing: Enables usage expansion only (limited expansion ceiling)
- Usage-based pricing: Enables usage expansion well, value expansion moderately
- Tiered packaging: Enables value expansion well, usage expansion moderately
- Multi-product pricing: Enables product expansion, plus one of the above for each product
The best expansion pricing combines multiple mechanisms. Don't rely on one path.
Usage Expansion: Aligning Pricing to Natural Growth
Per-user pricing is the default SaaS model because it's simple. But it only works if team size correlates with value delivered.
When per-user pricing enables expansion:
- Product value increases directly with users (collaboration tools, communication platforms)
- Customers naturally add users as they grow (sales tools where more reps = more seats)
- User growth is gradual and predictable (not spiky or one-time)
When per-user pricing limits expansion:
- Small teams get disproportionate value (analytics tools, marketing automation)
- Pricing punishes customer for sharing access (customer success tools where they'd love to give visibility to more people)
- Customer growth is in output/volume, not headcount (API usage, transaction processing)
Better usage metrics for expansion pricing:
Match your pricing metric to what grows as customers get more value:
- API calls/requests: For platform products where usage scales with customer's business
- Contacts/records: For CRM and marketing tools where database size indicates customer maturity
- Storage/data volume: For analytics and data products where more data = more insight
- Transactions processed: For payment, commerce, or workflow products
- Active projects/workspaces: For tools where customers naturally create more as they scale
The right metric should:
- Correlate with value delivered
- Grow naturally as customers succeed
- Be easy to measure and understand
- Feel fair to customers (they should expect to pay more as this metric grows)
Tiered Value Expansion: Creating Upgrade Incentives
Customers should want to upgrade not because they've outgrown their tier, but because they want capabilities in higher tiers.
Design upgrade incentives into tier structure:
Tier 1 (Entry):
- Core functionality that gets customers results
- But lacks efficiency, automation, or scale capabilities
- Designed for early-stage customers or limited use cases
Tier 2 (Growth):
- Everything in Tier 1
- Plus automation, integrations, and efficiency features
- Designed for customers who've proven value and want to do more, faster
Tier 3 (Scale):
- Everything in Tier 2
- Plus customization, governance, and advanced capabilities
- Designed for customers rolling out broadly or using product strategically
The key insight: Don't withhold core value from lower tiers
Customers should be successful in Tier 1. But as they scale, they should feel friction that higher tiers eliminate:
- Manual work that automation would eliminate
- Inefficiencies that integrations would solve
- Governance gaps that enterprise features would close
This is different from artificial limitations (crippling features to force upgrades). It's about natural evolution of customer needs.
Product Expansion: Cross-Sell That Feels Like Completion
Customers who bought Product A are ideal buyers for Product B—they already trust you, procurement is simpler, and integration is easier.
But most product expansion fails because companies treat it like new sales instead of natural evolution.
Design products for natural progression:
Approach 1: Workflow-based product expansion
Customer buys product that does Step 1 of their workflow. You offer products that do Steps 2 and 3.
Example:
- Product A: Lead capture and qualification
- Product B: Sales engagement and outreach
- Product C: Deal management and forecasting
Customer naturally wants all three as they mature their process.
Approach 2: Depth-based product expansion
Customer buys product for basic use case. You offer products that go deeper in same domain.
Example:
- Product A: Basic analytics dashboards
- Product B: Advanced analytics with predictions
- Product C: Data warehouse and custom modeling
Customer graduates to deeper products as sophistication increases.
Approach 3: Audience-based product expansion
Customer buys product for one team/persona. You offer products for adjacent teams.
Example:
- Product A: Sales enablement (for sales team)
- Product B: Customer education (for CS team)
- Product C: Partner enablement (for channel team)
One team's success drives demand from other teams.
Pricing for product expansion:
Offer bundle discounts that incentivize multi-product adoption:
- Product A alone: $500/month
- Product B alone: $400/month
- Both products: $750/month (17% discount)
The discount rewards expansion while keeping each product separately viable.
Expansion Triggers: Knowing When to Prompt Upgrades
Expansion pricing only works if you prompt customers at the right time.
Usage-based expansion triggers:
Monitor customer usage against tier limits. When they hit 80% of capacity:
- Notify customer account owner
- Show usage trends ("You're on track to exceed limits in 2 weeks")
- Offer seamless upgrade ("Add 50 more users for $X/month")
Don't wait until they've exceeded limits and hit product friction. Proactive upgrade prompts feel helpful, reactive ones feel like sales pressure.
Behavior-based expansion triggers:
Watch for signals that customers need higher-tier capabilities:
- Using workarounds that higher tiers eliminate (exporting data to spreadsheets instead of using built-in analytics)
- Requesting features that exist in higher tiers
- Adding users in roles that suggest broader rollout (execs, admins)
- Integration usage patterns that indicate scaling
Train your CS team to recognize these signals and have expansion conversations before customers ask.
Time-based expansion triggers:
Certain milestones are natural expansion moments:
- 90 days after initial purchase (proven value, ready to scale)
- Annual renewal (natural moment to reassess needs)
- After hitting specific success metrics (if they've achieved X, they're ready for Y)
Build expansion plays into your customer journey map. Expansion shouldn't be opportunistic; it should be expected and planned.
Expansion Pricing: What to Charge for Add-Ons
Common expansion pricing mistake: charging the same percentage margin on expansions as initial sales.
Expansion should be higher margin than new customer acquisition.
Expansion pricing principles:
Price expansion at full rate, not discounted
If new customers get 20% discount to close deals, expansion should be at list price. You've already proven value; no discount needed.
Exception: Bundle discounts for multi-product expansion or volume commitments.
Make expansion pricing simple
Complex pricing calculations for add-ons create friction. Expansion should be easy to buy:
- "Add 50 users at $X each"
- "Upgrade to Professional for $Y more per month"
- "Add Analytics module for $Z"
One-sentence pricing that customer can understand immediately.
Align expansion pricing to value received
If customer's usage grows 2x, should their price grow 2x? Depends on whether your costs grew 2x.
Usage-based pricing works when marginal costs are real. If serving a 2x larger customer costs you approximately 2x more, linear pricing is fair.
If marginal costs are low (software with minimal incremental cost to serve), consider tiered pricing where price growth is slower than usage growth:
- 0-100 units: $1 per unit
- 101-500 units: $0.75 per unit
- 501+ units: $0.50 per unit
This rewards high-usage customers while still capturing expansion revenue.
Measuring Expansion Revenue Success
Track these metrics to know if your expansion pricing is working:
Net Revenue Retention (NRR)
(Revenue from cohort today / Revenue from cohort 12 months ago) × 100
- <100%: You're losing revenue to churn faster than gaining from expansion
- 100-110%: Expansion covers churn
- 110-130%: Good expansion revenue
- 130%+: Excellent expansion revenue (best-in-class SaaS)
Expansion rate by cohort
What % of customers expand within first year? Track by acquisition cohort to see if you're improving.
Time to first expansion
How long after initial purchase does average customer expand? Shorter is better—means you're identifying expansion triggers effectively.
Expansion deal size vs. initial deal size
Are expansions meaningfully large relative to initial purchase? If average expansion is <10% of initial ACV, your expansion mechanism might not be working.
The Real Goal
Expansion revenue should feel inevitable, not like upselling.
Your pricing model should make growth the natural path for successful customers. When they get more value, you should automatically capture more revenue—without requiring sales intervention or customer friction.
Design for expansion from day one. The revenue you get from existing customers is the highest-margin growth you'll ever achieve.