Down-Sell ARR
Growth
Industry:
SaaS
Aliases:
Short Definition
Down-sell ARR is the decrease in annual recurring revenue (ARR) from existing customers who move to a lower tier/plan or remove a paid module in the period.
It’s a subset of Contraction ARR (reductions without fully churning).
Count it when effective (go-live/start date), not when signed.
Short Definition
Down-sell ARR is the decrease in annual recurring revenue (ARR) from existing customers who move to a lower tier/plan or remove a paid module in the period.
It’s a subset of Contraction ARR (reductions without fully churning).
Count it when effective (go-live/start date), not when signed.
Short Definition
Down-sell ARR is the decrease in annual recurring revenue (ARR) from existing customers who move to a lower tier/plan or remove a paid module in the period.
It’s a subset of Contraction ARR (reductions without fully churning).
Count it when effective (go-live/start date), not when signed.
Why it matters for Investors
Revenue headwind: Down-sell ARR reduces ARR, unless offset by new logos or expansion.
Margin pressure: When customers downgrade, ARR goes down. Most costs don’t drop much, so margins get squeezed.
Quality signal: Persistent down-sell points to weaker pricing power or plan fit and can pull down Net Revenue Retention even if logo churn is stable.
Why it matters for Investors
Revenue headwind: Down-sell ARR reduces ARR, unless offset by new logos or expansion.
Margin pressure: When customers downgrade, ARR goes down. Most costs don’t drop much, so margins get squeezed.
Quality signal: Persistent down-sell points to weaker pricing power or plan fit and can pull down Net Revenue Retention even if logo churn is stable.
Why it matters for Investors
Revenue headwind: Down-sell ARR reduces ARR, unless offset by new logos or expansion.
Margin pressure: When customers downgrade, ARR goes down. Most costs don’t drop much, so margins get squeezed.
Quality signal: Persistent down-sell points to weaker pricing power or plan fit and can pull down Net Revenue Retention even if logo churn is stable.
Formula
Practical considerations:
Scope: Existing customers only; new logos excluded.
Timing: Count on effective date (go-live); signed-not-live sits in CARR until it starts.
Attribution: If a change mixes feature scope and quantity/price cuts, split it: Down-sell = tier drop/module removed; Reduction = fewer seats/lower minimum or price-only cut.
Not included: Logo churn (customer to $0), one-off credits, and uncommitted/overage usage.
Formula
Practical considerations:
Scope: Existing customers only; new logos excluded.
Timing: Count on effective date (go-live); signed-not-live sits in CARR until it starts.
Attribution: If a change mixes feature scope and quantity/price cuts, split it: Down-sell = tier drop/module removed; Reduction = fewer seats/lower minimum or price-only cut.
Not included: Logo churn (customer to $0), one-off credits, and uncommitted/overage usage.
Formula
Practical considerations:
Scope: Existing customers only; new logos excluded.
Timing: Count on effective date (go-live); signed-not-live sits in CARR until it starts.
Attribution: If a change mixes feature scope and quantity/price cuts, split it: Down-sell = tier drop/module removed; Reduction = fewer seats/lower minimum or price-only cut.
Not included: Logo churn (customer to $0), one-off credits, and uncommitted/overage usage.
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Down-sell |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Down-sell |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn (Logo Churn) | Logo to $0, this is Logo Churn |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Down-sell |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Down-sell ARR (March): $14,000 = $8,000 (F) + $6,000 (G)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR (Down-sell): −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Only F (tier downgrade) and G (paid module removed) count as Down-sell ARR.
B is signed for April → sits in CARR (not ARR/New ARR/Down-sell in March).
A (New Logo), C (Upsell/Expansion), and E (Expansion ramp) are not down-sell events.
D goes to $0 → classify as Logo Churn, not Down-sell/Contraction.
Count changes on the effective (go-live) date only; signed-not-live stays in CARR until it starts.
If a single change mixes a feature drop and seats/minimum/price cuts, split it once: feature drop → Down-sell; seats/minimum/price → Reduction.
In the bridge, Contraction ARR = Down-sell ARR + Reduction ARR and appears as a negative flow (even if you show absolute amounts in detail).
If a Down-sell is reversed in the same period, net it to $0; if reversed later, record the increase as Expansion.
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Down-sell |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Down-sell |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn (Logo Churn) | Logo to $0, this is Logo Churn |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Down-sell |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Down-sell ARR (March): $14,000 = $8,000 (F) + $6,000 (G)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR (Down-sell): −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Only F (tier downgrade) and G (paid module removed) count as Down-sell ARR.
B is signed for April → sits in CARR (not ARR/New ARR/Down-sell in March).
A (New Logo), C (Upsell/Expansion), and E (Expansion ramp) are not down-sell events.
D goes to $0 → classify as Logo Churn, not Down-sell/Contraction.
Count changes on the effective (go-live) date only; signed-not-live stays in CARR until it starts.
If a single change mixes a feature drop and seats/minimum/price cuts, split it once: feature drop → Down-sell; seats/minimum/price → Reduction.
In the bridge, Contraction ARR = Down-sell ARR + Reduction ARR and appears as a negative flow (even if you show absolute amounts in detail).
If a Down-sell is reversed in the same period, net it to $0; if reversed later, record the increase as Expansion.
Worked Example
Starting ARR (Feb 28): $1,200,000
Contract log (March)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Down-sell |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Not effective in March |
C | Upsell on existing (+$18,000) effective Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Down-sell |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Churn (Logo Churn) | Logo to $0, this is Logo Churn |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Down-sell |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Down-sell ARR (March): $14,000 = $8,000 (F) + $6,000 (G)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR (Down-sell): −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Only F (tier downgrade) and G (paid module removed) count as Down-sell ARR.
B is signed for April → sits in CARR (not ARR/New ARR/Down-sell in March).
A (New Logo), C (Upsell/Expansion), and E (Expansion ramp) are not down-sell events.
D goes to $0 → classify as Logo Churn, not Down-sell/Contraction.
Count changes on the effective (go-live) date only; signed-not-live stays in CARR until it starts.
If a single change mixes a feature drop and seats/minimum/price cuts, split it once: feature drop → Down-sell; seats/minimum/price → Reduction.
In the bridge, Contraction ARR = Down-sell ARR + Reduction ARR and appears as a negative flow (even if you show absolute amounts in detail).
If a Down-sell is reversed in the same period, net it to $0; if reversed later, record the increase as Expansion.
Best Practices
Track what actually started: Record tier/plan downgrades and paid-module removals only when they start (effective date).
Don’t count early: Signed-for-later downgrades stay in CARR until they start.
Split mixed changes: Down-sell for feature scope; Reduction for seats/minimum/price.
Look for patterns: Segment by customer type, plan/module, and reason codes (budget, usage, price).
Act on it: Contact downgraded customers, help them move to the right plan, review the modules that many customers drop, and avoid very large discounts at renewal.
Best Practices
Track what actually started: Record tier/plan downgrades and paid-module removals only when they start (effective date).
Don’t count early: Signed-for-later downgrades stay in CARR until they start.
Split mixed changes: Down-sell for feature scope; Reduction for seats/minimum/price.
Look for patterns: Segment by customer type, plan/module, and reason codes (budget, usage, price).
Act on it: Contact downgraded customers, help them move to the right plan, review the modules that many customers drop, and avoid very large discounts at renewal.
Best Practices
Track what actually started: Record tier/plan downgrades and paid-module removals only when they start (effective date).
Don’t count early: Signed-for-later downgrades stay in CARR until they start.
Split mixed changes: Down-sell for feature scope; Reduction for seats/minimum/price.
Look for patterns: Segment by customer type, plan/module, and reason codes (budget, usage, price).
Act on it: Contact downgraded customers, help them move to the right plan, review the modules that many customers drop, and avoid very large discounts at renewal.
FAQs
What counts as Down-sell ARR?
Tier/plan downgrades or removing a paid module that became effective in the period.Is Down-sell the same as Contraction?
No. Contraction ARR is the umbrella for ARR lost from customers who stay. It equals Down-sell ARR (tier/plan downgrade or module removed) + Reduction ARR (fewer seats/units, a lower committed minimum, or a price-only decrease at the same tier & quantity).Does a price-only decrease count as a Down-sell?
No. That’s Reduction ARR (price), not Down-sell.What if the customer downgrades and also cuts seats?
Split the change: attribute the feature drop to Down-sell and the seat cut to Reduction.Can Down-sell ARR be negative?
No. It’s a loss metric; decreases are reported as positive amounts in the detail but appear as a negative flow in the bridge.
FAQs
What counts as Down-sell ARR?
Tier/plan downgrades or removing a paid module that became effective in the period.Is Down-sell the same as Contraction?
No. Contraction ARR is the umbrella for ARR lost from customers who stay. It equals Down-sell ARR (tier/plan downgrade or module removed) + Reduction ARR (fewer seats/units, a lower committed minimum, or a price-only decrease at the same tier & quantity).Does a price-only decrease count as a Down-sell?
No. That’s Reduction ARR (price), not Down-sell.What if the customer downgrades and also cuts seats?
Split the change: attribute the feature drop to Down-sell and the seat cut to Reduction.Can Down-sell ARR be negative?
No. It’s a loss metric; decreases are reported as positive amounts in the detail but appear as a negative flow in the bridge.
FAQs
What counts as Down-sell ARR?
Tier/plan downgrades or removing a paid module that became effective in the period.Is Down-sell the same as Contraction?
No. Contraction ARR is the umbrella for ARR lost from customers who stay. It equals Down-sell ARR (tier/plan downgrade or module removed) + Reduction ARR (fewer seats/units, a lower committed minimum, or a price-only decrease at the same tier & quantity).Does a price-only decrease count as a Down-sell?
No. That’s Reduction ARR (price), not Down-sell.What if the customer downgrades and also cuts seats?
Split the change: attribute the feature drop to Down-sell and the seat cut to Reduction.Can Down-sell ARR be negative?
No. It’s a loss metric; decreases are reported as positive amounts in the detail but appear as a negative flow in the bridge.
Related Metrics
Commonly mistaken for:
Reduction ARR (fewer seats/units or a lower committed minimum, or a price-only decrease at the same tier & quantity)
Logo Churn ARR (customer goes to $0 (contract ends))
Related Metrics
Commonly mistaken for:
Reduction ARR (fewer seats/units or a lower committed minimum, or a price-only decrease at the same tier & quantity)
Logo Churn ARR (customer goes to $0 (contract ends))
Related Metrics
Commonly mistaken for:
Reduction ARR (fewer seats/units or a lower committed minimum, or a price-only decrease at the same tier & quantity)
Logo Churn ARR (customer goes to $0 (contract ends))
Source of:
Index