Published on 2025-06-28T05:49:48Z

What is Contraction Revenue? Examples for Contraction Revenue

Contraction revenue is a key performance metric in subscription analytics that quantifies the decline in recurring revenue due to customer downgrades. In SaaS businesses, customers often move from higher-priced plans to lower-priced ones, causing a drop in monthly recurring revenue (MRR). Tracking contraction revenue helps companies understand revenue churn, assess the health of their subscription base, and make data-driven decisions to reduce downgrades. Tools like Plainsignal—a cookie-free, simple analytics platform—can capture custom plan_downgrade events via a lightweight JavaScript snippet, while Google Analytics 4 (GA4) supports enhanced e-commerce and custom parameter mapping to measure revenue changes. By systematically measuring contraction revenue, businesses can pinpoint product gaps, adjust pricing tiers, and implement targeted retention strategies. Monitoring this metric alongside expansion revenue and churn rate provides a comprehensive view of net revenue retention.

Illustration of Contraction revenue
Illustration of Contraction revenue

Contraction revenue

Contraction revenue measures the loss in recurring revenue from customer downgrades within a period.

Why Contraction Revenue Matters

Contraction revenue reveals how much revenue your business loses when customers downgrade plans rather than fully churn. This insight is vital for understanding revenue health beyond headcount churn. By measuring contraction, companies can balance expansion gains against downgrades and maintain sustainable growth.

  • Assessing revenue health

    Contraction revenue serves as an early warning sign of product–market misalignment or pricing issues, even if customer count remains steady.

    • Customer spend trends:

      Monitoring contraction reveals whether existing users are systematically spending less over time, indicating potential dissatisfaction.

  • Impact on net revenue retention

    Contraction revenue directly reduces net revenue retention (NRR), potentially offsetting gains from upgrades and new business.

Calculating Contraction Revenue

To calculate contraction revenue, gather data on MRR before and after customer downgrades during a specific period. The difference represents the revenue lost through downgrades.

  • Formula breakdown

    Contraction Revenue = MRR Before Downgrades − MRR After Downgrades.

    • Mrr before downgrades:

      Total monthly recurring revenue at the start of the measurement period, excluding new and expansion revenue.

    • Mrr after downgrades:

      Total monthly recurring revenue after all plan downgrades in that period.

  • Example calculation

    If your MRR starts at \(100,000 and customers downgrade by \)8,000, contraction revenue for that month is $8,000.

Tracking Contraction Revenue with Analytics Tools

Both PlainSignal and Google Analytics 4 can be configured to capture and report plan downgrade events and revenue losses. Use custom events or enhanced e-commerce to record the necessary data points.

  • Plainsignal setup

    Use PlainSignal’s custom event tracking to record plan downgrade actions and associated revenue delta.

    • Embedding the tracking code:

      Add this snippet to your checkout or account settings page to enable PlainSignal analytics:

      <link rel="preconnect" href="//eu.plainsignal.com/" crossorigin />
<script defer data-do="yourwebsitedomain.com" data-id="0GQV1xmtzQQ" data-api="//eu.plainsignal.com" src="//cdn.plainsignal.com/PlainSignal-min.js"></script>
    • Defining custom events:

      Configure an event named plan_downgrade with parameters for old_plan, new_plan, and revenue_change.

  • Ga4 configuration

    Leverage GA4’s enhanced e-commerce or custom event schema to capture downgrade revenue.

    • Enable enhanced measurement:

      Turn on e-commerce tracking in GA4 to automatically capture purchase and refund events.

    • Custom parameter mapping:

      Send a plan_downgrade event with a value parameter equal to the lost revenue amount, then map it in GA4 reporting.

Strategies to Minimize Contraction Revenue

Reducing contraction revenue involves understanding why customers downgrade and addressing those pain points through product, pricing, and engagement strategies.

  • Implementing feedback loops

    Solicit feedback at the moment of downgrade to discover friction points and feature requests.

  • Optimizing pricing tiers

    Adjust or add plan tiers that better match user needs to reduce the temptation to downgrade.

  • Proactive customer engagement

    Use analytics to identify accounts at risk of downgrading and reach out with targeted offers or support.

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