Formula
Contraction MRR = Σ (opening MRR − closing MRR)
for customers with MRR at both dates
whose MRR decreased (at prior-month rates);
deducted in the bridgeWorked example
Illustrative figures. Customer E fell to zero, so its decrease of 2,000 is churn rather than contraction.
| Customer | History | MRR 31 Aug | MRR 30 Sep | Movement |
|---|---|---|---|---|
| Customer A | First contract | – | 4,000 | New business 4,000 |
| Customer B | Churned in March | – | 2,500 | Reactivation 2,500 |
| Customer C | Since 2024 | 3,000 | 4,200 | Expansion 1,200 |
| Customer D | Since 2025 | 5,000 | 3,500 | Contraction (1,500) |
| Customer E | Since 2023 | 2,000 | – | Churn (2,000) |
| Customer F | Module +1,000, seats −600 | 6,000 | 6,400 | Expansion 400 |
| Total | 16,000 | 20,600 | 4,600 |
Contraction MRR = 1,500
Contraction and churn
The distinction matters because the causes and remedies differ. Contraction usually reflects a renewal negotiation, a budget reduction or a partial loss to a competitor; churn is the end of the relationship. Gross MRR churn combines the two, while logo churn counts only churn.
Pauses and partial cancellations
A partial cancellation that leaves recurring revenue in place is contraction. A full pause takes MRR to zero; many companies report it as churn followed by reactivation when billing resumes, and some exclude short contracted pauses. Either is acceptable if stated.
Renewal pricing
Contraction clusters at renewal dates. A renewal at a lower price is contraction in the month the new price takes effect, provided the contract renews without a gap. A contract that lapses over a month end leaves MRR as churn and returns as reactivation.
How Revnewed calculates it
Contraction is a decrease for a customer who still has MRR, measured per customer at the prior month’s rates. A decrease to zero is churn.
The month’s largest losses by customer are listed with their movement type, and renewals due in the next 90 days are listed with their ARR.
Common misstatements
- Downgrades counted as lost customers
- A customer who downgrades is still a customer. Logo churn is unaffected.
- Currency losses as contraction
- A stronger reporting currency reduces the value of foreign-currency contracts. That is FX impact.
- Renewal discounts overlooked
- A renewal at a lower price is contraction when the contract continues without a gap.