Contraction MRR
The revenue you lose when customers downgrade instead of leaving — and why it is an early warning for churn.
What is it?
Contraction MRR is the recurring revenue you lose when an existing customer reduces their subscription but does not cancel — they move to a cheaper plan, remove seats or drop an add-on. The customer stays; the payment shrinks.
It is the quiet counterpart to expansion. Left uninstrumented, contraction erodes net revenue retention from underneath, and because the logo is still on the books it rarely surfaces in a churn report until it has already become churn.
How to calculate?
For every customer whose recurring payment fell during the period, contraction is the previous amount minus the new amount, summed across all of them. A customer dropping from $99 to $49 contributes $50 of contraction, whether they downgraded a tier, removed seats or cancelled an add-on.
Contraction is one of five MRR movements — new, expansion, contraction, churn and reactivation — and it sits on the losing side of the ledger: net new MRR is new plus expansion plus reactivation, minus contraction and churn. Watching contraction against expansion tells you whether your base is trading up or trading down.