What is expansion MRR and contraction MRR?

Full Explanation

Net Revenue Retention (NRR) is calculated as (beginning MRR + expansion MRR − contraction MRR − churn MRR) / beginning MRR. High-performing SaaS companies achieve NRR above 120%, meaning that revenue from existing customers grows faster than churn. Expansion MRR typically comes from three sources: seat expansion (more users), feature upgrades (moving from Standard to Premium tier), and upsells of new products. Contraction MRR reveals where you're losing revenue — whether from price-sensitive customers downgrades, feature removal (unusual), or competitive displacement. Companies with strong expansion MRR often have excellent retention because power users discover new value and expand usage. Conversely, companies with high contraction MRR typically signal product stagnation or poor customer success. Opagio's calculator allows you to model expansion and contraction scenarios to forecast long-term MRR growth.

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