Definition

Contraction monthly recurring revenue (MRR) is a SaaS performance metric that is used to estimate net MRR reduction as a result of subscription downgrades or cancellations in the current month vis-a-vis the prior month.

Example

Contraction MRR is calculated as Downgrade MRR + Cancellation MRR. Suppose a SaaS company charges a monthly premium subscription fee of $250. If the company had 1 customer churn and 2 opting out for a basic of $100.Contraction MRR = [2x$100] + $250 = $450.

Why it matters

Contraction MRR is used to gauge how well a business is at retaining customers and how well its product/service is scaling with customers’ growth.A high contraction MRR could mean customers are churning or customers are opting for lower-priced plans since they may not be finding value in higher-priced plans.

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