Net New ARR
The change in ARR over a period: new plus expansion minus contraction minus churn. The headline growth number.
The figure and its parts
Net new ARR is the change in annual recurring revenue across a period: new business plus expansion, minus contraction and churn. It is the number most often reported as 'growth', and on its own it is the least informative version of it.
Net new ARR = new + expansion − contraction − churn. The same net figure can be produced by a business winning a great deal and losing a great deal, or by one winning modestly and losing almost nothing, and those are not remotely the same company.
Always report the four components
How to decompose it
Fix the cohort and the period before counting anything. New business is revenue from customers who did not exist at the start; expansion and contraction come from those who did.
Separate contraction from churn. A customer who downgraded still has a relationship; one who left does not, and the causes rarely overlap.
Express each component as a share of the net figure. A period where expansion is 60% of net new is a very different business from one where it is 10%, even at identical totals.
Track gross new alongside net. If gross new is growing while net is flat, acquisition is working and retention is consuming it.
Reconcile against the ARR balance. Opening ARR plus net new should equal closing ARR; where it does not, something is being counted on a different basis.
Where it misleads
Multi-year and prepaid contracts distort it if you book total contract value rather than the annualised figure. The basis has to be consistent or the number is not comparable period to period.
One large deal can dominate a period and make a trend look like a step change. Median deal contribution alongside the total is a cheap corrective.
Usage-based revenue makes net new partly a measure of your customers' growth rather than your own performance.
Net new says nothing about margin or cost of acquisition. A period of strong net new bought with unsustainable discounting looks identical to an efficient one.
RELATED TERMS
Annual Recurring Revenue (ARR)
The annualised value of recurring subscription revenue at a point in time. A run rate, not a measure of revenue earned during a period.
Expansion Revenue
Additional recurring revenue from existing customers: more seats, higher tiers, additional products or increased usage.
Churn Rate
The proportion of customers or revenue lost over a period, expressed as a percentage of the starting base.
Bookings
The total value of contracts signed in a period, regardless of when revenue is recognised or cash collected.
Net Revenue Retention (NRR)
Revenue retained from an existing cohort over a period including expansion, expressed as a percentage of where that cohort started. The clearest single indicator of whether the base grows without new customers.
COMMON QUESTIONS
- What is net new ARR?
- The change in annual recurring revenue over a period: new business plus expansion, minus contraction and churn. It is the figure usually reported as growth. On its own it is the least informative version of growth, because identical net figures can come from very different combinations of winning and losing.
- How is net new ARR different from bookings?
- Bookings record what was contracted, often including one-off services and the full value of multi-year deals. Net new ARR records the change in the annualised recurring base after churn and contraction. A strong bookings quarter can coincide with flat net new ARR if the contracts were multi-year or if churn offset the wins, which is why the two should never be used interchangeably.
- Why decompose net new ARR?
- Because the fix depends entirely on which component moved, and the net figure hides that. Flat net new caused by weak acquisition needs pipeline; flat net new caused by rising churn needs retention work and will get worse if you spend on acquisition instead. Reporting only the net number is how a retention problem gets funded as a demand problem.
- Should expansion count as net new ARR?
- It belongs in the net figure — it is genuine recurring revenue growth — but it should always be reported as a separate component. Expansion-heavy growth is a different risk profile from new-logo growth: it is cheaper to acquire and concentrates dependence on the existing base, so a business where most of net new is expansion has a narrower foundation than the headline suggests.
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