What is SaaS Contraction MRR?

SaaS Contraction MRR is a SaaS metric that looks at the reduction in Monthly Recurring Revenue (MRR) from existing customers due to downgrades, reduced usage, or removal of paid features. Its main concern is its active customer base. 

This metric is important for SaaS businesses because it monitors potential revenue leakage and gives developers time to intervene before churn becomes a serious issue. 

Other terms used to describe this metric include negative expansion revenue and downgrade MRR. 

SaaS contraction MRR formula is: 

Contraction MRR = Revenue lost from downgrades + Revenue lost from reduced usage – Revenue regained from upgrades within the same period

Exemple :

If customers downgrade plans, resulting in $5,000 lost and a reduction of add-ons worth $2,000, the Contraction MRR for that month is $7,000.

SaaS contraction MRR has the following traits:

• Monitors revenue decline without user churn
  
• Signals dissatisfaction or reduced product value
  
• Impacts Net Revenue Retention (NRR)
  
• Often precedes full customer cancellation
  
• Impacts on forecasting accuracy

Contraction MRR has the following causes: 

• Customers downgrade to lower pricing options
  
• Changes in the product usage in usage-based pricing models
  
• Budget constraints or economic slowdowns
  
• Feature misalignment or lack of perceived value
  
• Seasonal demand changes

Contraction MRR and churn rate are two important SaaS metrics. While connected, they measure different aspects:

• taux de désabonnement monitors customers who cancel entirely.

• MRR de contraction looks at revenue reduction from active customers.

It is true that a high contraction MRR will ultimately lead to customer churn. However, it is important to track both instances separately, as these metrics determine Net Revenue Retention, which evaluates the revenue performance of the existing customer base. 

While there is no generally valid benchmark, a contract MRR rate of below 1–2% of total MRR per month is considered safe. Still, keep in mind that these values depend on the pricing model, product type, and industry. 

Dans le SaaS d’entreprise, the contraction MRR is lower, but this is because the contract length is longer. Modèles basés sur l'usage are prone to higher contraction MRR. 

Best practices for managing contraction MRR include:

• Keep a close eye on the downgrade trends monthly
  
• Run exit or downgrade surveys to understand why users are reducing usage
  
• Offer value-based feature bundles
  
• Améliorer d'intégration et Succès client
• Monitor product usage data closely