Net New ARR
MetricRevOps
The total change in ARR over a period, calculated as New ARR + Expansion ARR - Churned ARR - Contraction ARR.
What is Net New ARR?
Net New ARR is the total change in Annual Recurring Revenue over a given period. It incorporates all four movements of recurring revenue and is a core growth metric for subscription businesses.
Formula:
Net New ARR = New ARR + Expansion ARR - Contraction ARR - Churned ARR
Where:
- New ARR: Recurring revenue from brand new customers.
- Expansion ARR: Additional recurring revenue from existing customers (e.g., upsells, cross-sells, added seats).
- Contraction ARR: Decrease in recurring revenue from existing customers (e.g., downgrades, seat reductions).
- Churned ARR: Recurring revenue lost when customers cancel entirely.
Why the Breakdown Matters
Two businesses can report the same Net New ARR but have very different underlying health:
- Company A: $2.5M new + $500K expansion - $500K contraction - $500K churn = $2M Net New ARR
- Company B: $4M new + $200K expansion - $1M contraction - $1.2M churn = $2M Net New ARR
Even though both show $2M in Net New ARR, Company A has stronger fundamentals: healthier retention and lower contraction/churn.