This is the other component that drives Contraction MRR. Downgrade MRR is the monthly recurring revenue lost from subscriptions that moved from an existing to a lower plan. This is the reduction in monthly recurring revenue caused by factors such as add-ons removed from subscriptions, a decrease in subscription quantity, and the recurring discounts you provide.
For example, if a subscription (customer) has moved from plan A (MRR $500) to plan B (MRR $100) then the Downgrade MRR would be $400.
Also, for a subscription where a customer has upgraded the plan but the discount or addon is removed from the plan, then it eventually results in a downgrade MRR. For example, if a subscription moves from Plan A (MRR $50) to Plan B (MRR $100) and removes an earlier added recurring addon 2 (MRR $100) then the Downgrade MRR will be $50.
High Downgrade MRR means customers are not finding enough value in their current plans for the price they pay. Hence, the downgrade. So when you see Downgrade MRR rising, make sure you talk to customers to understand the grievances and relay them back to the product. The eventual solution might be to add relevant high-value features to your higher subscription plans or to invest further in customer marketing and customer success initiatives.