Net new ARR
Also known as: net new annual recurring revenue
In short
Net new ARR is the total change in annual recurring revenue over a period. It adds ARR from new customers and expansion, then subtracts ARR lost to churn and downgrades.
Because it nets out losses, it shows real growth of the recurring base. Gross new ARR can look strong while churn quietly cancels it, and net new ARR exposes that.
How to calculate net new ARR
- Formula: Net new ARR = new logo ARR + expansion ARR - contraction ARR - churned ARR.
- Example: Say a team adds 900,000 from new customers and 300,000 from upsells in a quarter, and loses 150,000 to downgrades and 250,000 to churn. Net new ARR is 900,000 + 300,000 - 400,000, or 800,000.
- Shortcut: Ending ARR minus starting ARR gives the same number if nothing else changed.
Why GTM leaders track it
- Single growth number: It summarizes the combined result of sales, marketing, and customer success.
- Planning: Hiring, quota, and pipeline targets are often derived from a net new ARR goal.
- Efficiency: Dividing sales and marketing spend by net new ARR shows how much it costs to add a dollar of recurring revenue.
Net new ARR vs. related metrics
- New logo ARR: Only revenue from first-time customers. Net new ARR also includes expansion and losses.
- ARR: The total recurring base at a point in time. Net new ARR is the change in that base.
- Net revenue retention: A percentage describing the existing customer base only. Net new ARR also includes new customers.
How to increase it
- Grow pipeline quality: Focus on accounts that match your ICP and show buying signals.
- Expand existing accounts: Upsell and cross-sell to customers who already get value.
- Reduce churn: Every dollar kept counts the same as a dollar won, often at lower cost.
- Shorten deal cycles: Closing sooner pulls ARR into the current period.
Common mistakes
- Counting bookings as ARR: Only recurring contract value counts, not one-time services.
- Counting at signing: Be consistent about whether ARR is recognized at signature or at go-live.
- Hiding churn: Report components separately so the composition is visible.
Net new ARR FAQs
What is net new ARR?
Net new ARR is the net change in annual recurring revenue during a period. It equals ARR from new customers plus expansion, minus ARR lost to downgrades and cancellations, giving a clear picture of real recurring growth.
How do you calculate net new ARR?
Add new customer ARR and expansion ARR, then subtract contraction ARR and churned ARR. You can also subtract starting ARR from ending ARR for the same period, provided nothing else changed the base.
What is the difference between net new ARR and new ARR?
New ARR counts only recurring revenue added, usually from new customers and sometimes expansion. Net new ARR also subtracts revenue lost to churn and downgrades, so it reflects the actual change in your recurring revenue base.
Why is net new ARR important?
It combines the output of sales, marketing, and customer success into one growth figure. Companies use it to set targets, evaluate go-to-market efficiency, and see whether new wins outpace revenue lost from existing customers.
