Average Contraction Amount
The typical size of a downgrade — whether customers are trimming a little or cutting deep.
What is it?
Average Contraction Amount is the typical size of a downgrade — total Contraction MRR divided by the number of contraction events. It tells you whether customers are trimming a little or cutting deep when they reduce their spend.
A growing average is a sharper warning than a growing count. Many small trims can be routine right-sizing; a rising average means the customers who contract are pulling back hard, which tends to precede churn.
How to calculate?
Divide total Contraction MRR by the number of contraction events. Downgrades of $30, $50 and $70 average $50. As with expansion, count events rather than customers.
Compare it to average churn amount: when the two converge, contraction is effectively partial churn, and the accounts doing it deserve the same attention as ones about to cancel.