What is contraction rate?
Contraction rate is the share of your starting MRR lost in a period because existing customers downgraded. A move to a cheaper plan, fewer seats or a removed add-on all count. The customer is still paying, just less.
It is the part of revenue churn that customer counts never show. Your customer churn rate can look flat while MRR leaks through downgrades.
The contraction rate formula
Worked example
A hypothetical company starts April at $40,000 MRR. Two customers remove seats and one moves to a cheaper plan, cutting $180 of MRR between them.
At $40,000 MRR this company sits in the $10K–$50K tier. The benchmark median there is 0.3% a month and the bottom 25% starts at 0.5%. At 0.45%, downgrades cost more than at a typical company of this size: worth finding out which plan or feature they leave.
Why contraction rate matters
Contraction is often the first sign a customer is drifting. Seats come off as a team shrinks or stops using the product. A plan drops when a feature no longer earns its price. Some of those customers cancel later, so a rising contraction rate can be an early warning for churn.
It also points at pricing. If many customers move from the same plan to the one below it, that plan may be priced above the value it delivers to them, or its key feature may sit in the wrong tier.
Where it comes from on Stripe
On Stripe, contraction shows up as subscription changes that lower the recurring amount: a price change to a cheaper plan, a lower quantity or a removed recurring item. North Metric tracks these as contraction MRR in MRR Movement, the waterfall this rate is built from.
Contraction vs churn
| Contraction | Churn | |
|---|---|---|
| Customer still paying | Yes, at a lower amount | No |
| Shows in customer churn | No | Yes |
| Counted in GRR and NRR | Yes | Yes |
| What to do | Ask why, check plan fit, offer a path back up | Win-back, or fix the failed payment |
Gross MRR churn rate adds the two together. Split it to see whether you lose revenue mainly through cancellations or through downgrades. The fixes are different.
Common contraction rate mistakes
- Counting cancellations. A full cancellation is churn. Counting it as contraction makes churn look smaller and contraction look larger.
- Netting against upgrades. Contraction rate is gross. Offsetting it with upgrades hides both movements.
- Using end-of-period MRR as the base. The denominator is MRR at the start of the period. Ending MRR mixes in new business and the losses themselves, so the rate moves with growth instead of with downgrades.
- Annual plans changed mid-term. Normalize the change to monthly MRR first. A $600 cut to an annual plan is $50 of MRR.
Contraction rate benchmarks
Benchmarks by revenue stage, compiled from published SaaS studies and North Metric’s own analysis.For contraction rate, the annual revenue lost (100% minus GRR) was split by the share usually lost to downgrades, 30% for smaller companies and 35–40% for larger ones, then converted to monthly rates. Read them as a guide rather than measured monthly data.
| Stage · MRR | Bottom 25% | Median | Top 25% |
|---|---|---|---|
| Seed · < $10K | 0.8% | 0.5% | 0.3% |
| Early · $10K – $50K | 0.5% | 0.3% | 0.2% |
| Growth · $50K – $100K | 0.4% | 0.2% | 0.1% |
| Scale · $100K – $500K | 0.4% | 0.2% | 0.1% |
| Enterprise · $500K+ | 0.3% | 0.2% | 0.1% |
Frequently asked questions
Is 0.5% monthly contraction good?
It depends on your size. Below $10K MRR, 0.5% a month is the benchmark median. From $10K to $50K MRR it is the line for the bottom 25%. Above $50K MRR the medians are 0.2% and the bottom 25% starts at 0.3% to 0.4%, so 0.5% means downgrades are costing more than at most companies your size. These are monthly figures converted from annual data.
What is the difference between contraction and churn?
Churn is a customer canceling completely. Contraction is a customer who stays but pays less: a cheaper plan, fewer seats or a removed add-on. Both reduce MRR, but contraction leaves the relationship intact, so it is easier to win back.
Is contraction the same as downgrade rate?
They measure the same event in different units. Contraction rate is in dollars: downgraded MRR as a share of starting MRR. Downgrade rate counts customers: how many downgraded as a share of customers at the start.
Does contraction count in NRR and GRR?
Yes. Both subtract contraction MRR. In GRR it is one of only two losses, so rising contraction pulls GRR down directly.
From metric to action
North Metric ranks your paying Stripe customers by money at risk, so you see who is likely to leave before this number moves. See how churn prediction works.