What is Contraction MRR?
Contraction MRR is recurring revenue lost from customers who stayed: downgrades, removed seats, dropped add-ons and expired discounts running the other way. The customer is still yours, they are simply worth less.
Contraction and churn are different events and should never be pooled. Churn is a customer leaving; contraction is a customer staying on less. Pooling them makes a downgrade look as final as a cancellation and hides the group most likely to leave next.
It is usually the earliest reliable warning you get. Accounts that shed seats this quarter are the accounts that cancel next quarter, and unlike a support ticket, contraction shows up in the billing data whether or not anyone tells you.
How to calculate Contraction MRR
Contraction MRR = sum of MRR decreases on customers who remain active
- MRR decrease
- previous subscription MRR minus new subscription MRR, when the result is still above zero
- remain active
- a drop to zero MRR is churn, not contraction
Contraction MRR example
Given
- 6 customers drop seats, together $520 less per month
- 3 customers downgrade tier, together $300 less per month
- 2 customers cancel outright, worth $410 a month
Nine accounts shrank and two left. The nine are still reachable, which is the entire reason to keep the two numbers apart.
Why Contraction MRR matters
- It is the leading indicator for churn. Intervening while the customer is still paying you something is cheaper than winning them back after they leave.
- It sits in both revenue churn rates, so a contraction problem shows up as a retention problem whether or not anybody is cancelling.
- Concentrated contraction in one plan or segment is usually a packaging problem rather than a product one.
Common Contraction MRR mistakes
Recording a drop to zero as contraction
A customer who goes to zero MRR has churned. Filing that as contraction understates churn and overstates the base you are retaining.
Ignoring it because the logo stayed
Revenue-weighted, a large account halving its spend can cost more than several small cancellations, and a logo count will never show it.
Missing contraction hidden by an expiring discount
When a promotional rate ends and the customer downgrades to compensate, the cause is your pricing calendar, not the product.
How Kometrics computes Contraction MRR
Decreases in a customer's MRR land in the ledger as contraction movements, and a decrease all the way to zero is classified as churn instead, so the two never blur. Contraction appears in the MRR Movements breakdown, feeds both the gross and net MRR churn rates, and shows up in the dashboard's MRR breakdown alongside the customer count behind it.
Related terms
Expansion MRR is the additional recurring revenue you earn from customers you already have. Upgrades to a higher plan, extra seats, add-on modules and price increases all count; a new customer never does.
Churn rateChurn rate is the share of your customers, or of your revenue, that you lost during a period. Which of the two you mean changes the number substantially, so the qualifier matters as much as the figure.
GRRGross revenue retention is the share of existing revenue you held onto, counting only the losses. Downgrades and cancellations count against you; expansion earns no credit, so GRR can never exceed 100%.
Net MRR movementNet MRR movement is the total change in MRR over a period once every movement is added up: new business, expansion and reactivation on one side, contraction and churn on the other. It is the bridge between where MRR started and where it ended.
Get this number from your billing data
Kometrics connects to Stripe, Paddle, Creem and Asaas and computes Contraction MRR continuously, with every movement behind it. Free under $1,000 MRR.
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