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Contraction MRR

Contraction MRR is the decrease in MRR from customers who still have MRR at the closing measurement date. It covers seat reductions, downgrades, removed products and price concessions, measured as one net change per customer and at constant currency. A decrease to zero is churn.

Also called
Downgrade MRR, Downsell
In Revnewed
Calculated in Revnewed

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 bridge

Worked example

Illustrative figures. Customer E fell to zero, so its decrease of 2,000 is churn rather than contraction.

CustomerHistoryMRR 31 AugMRR 30 SepMovement
Customer AFirst contract–4,000New business 4,000
Customer BChurned in March–2,500Reactivation 2,500
Customer CSince 20243,0004,200Expansion 1,200
Customer DSince 20255,0003,500Contraction (1,500)
Customer ESince 20232,000–Churn (2,000)
Customer FModule +1,000, seats −6006,0006,400Expansion 400
Total16,00020,6004,600

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.

Close a month on your own contracts

Import customers and contract line items from CSV, review the bridge and close the month. The sample company is there to compare against while you set up.

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