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SaaS glossary · Revenue

What is Contraction MRR?

Also known as: Downgrade MRR, downsell MRR

Contraction MRR is recurring revenue lost when an existing customer downgrades — a smaller plan, fewer seats, lower usage — without fully churning.

01

What is Contraction MRR?

When a customer reduces their subscription value but stays a customer, the lost MRR is contraction (not churn). Common causes: seat reductions, plan downgrades, removed add-ons, lower usage on a usage-based plan.

02

How to calculate Contraction MRR

Contraction MRR = sum of MRR reduced from existing customers in the period.

Does not include customers who fully churned (that is churn MRR). Does not include new logos who took a smaller-than-expected plan.

03

Contraction vs Churn vs Expansion

Expansion MRR (positive) and Contraction MRR (negative) both happen with existing customers. Churn MRR is a customer who fully cancelled. NRR captures all three: NRR = (Start + Expansion − Contraction − Churn) / Start.

04

Why it matters

Contraction is the quieter leading indicator of churn. Customers downsize before they leave. Watching monthly contraction MRR (separately from churn) catches the slow bleed early.

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