For instance, if a subscription (customer) has moved from plan A (MRR $500) to plan C (MRR $100) then the Downgrade MRR would be $400.
In other words, Downgrade MRR of a month is the sum total of MRR lost from active subscribers in a month compared to their MRR contribution in the previous month.
This could happen due to subscribers:
Moving from their existing plan to a lower-priced one
Reducing their subscription quantity (like agent seats for a helpdesk software)
Removing recurring add-ons
How to calculate Downgrade MRR?
Downgrade MRR (This Month) = Sum (MRR lost this month compared to last month from active subscribers of this month)
How should a business interpret downgrade MRR?
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 it 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.
Note: A price change event could also trigger downgrades.