Definition

Downsell ARR is the value of ARR decreased from an existing client. Companies may resort to downselling by offering a less-priced or more affordable product/service to a customer who is hesitant to purchase otherwise.

Example

Suppose ABC Co. has an ARR of $100,000 and 10 seats for Vareto (each costing $10k per year). ABC Co. decides that they only need 9 seats for Vareto. This results in an ARR of $90,000. Downsell ARR = $10,000

Why it matters

Downsell ARR is a crucial metric as it highlights whether a company can manage to renew contracts with clients without reducing the value of the contracts. Downsell is a form of churn and although not as impactful as true churn, it could be a precursor to churn if existing clients are reducing their spend with a company.

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