Net New ARR

TL;DR

Net new ARR is the change in recurring revenue in a period after all inflows and outflows. The formula is New ARR + Expansion ARR - Churn ARR - Contraction ARR. It is the metric that tells you whether the business is growing or shrinking. Gross bookings alone can hide a shrinking customer base behind strong new logo sales. Updated April 2026.

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Why Net New ARR Is the Truth-Telling Metric

Net new ARR is defined as the total change in annualized recurring revenue during a period, combining new customer acquisition, expansion from existing customers, and losses from churn and contraction. It is the answer to a simple question: is the recurring revenue base bigger or smaller than it was at the start of the period?

The reason it matters more than gross bookings is arithmetic. A company that closes $8M of new ARR in a quarter looks strong until you learn that $10M churned or contracted. The real story is that the business shrank by $2M despite what looked like a solid sales quarter. Net new ARR catches this. Bookings-only reporting hides it.

The Four Components of the Formula

Net New ARR = New ARR + Expansion ARR - Churn ARR - Contraction ARR

Each component has a specific definition and a specific team that owns it:

Component	Definition	Owner
New ARR	Annualized recurring revenue from net-new logos	New business sales
Expansion ARR	Upsell, cross-sell, and seat expansion from existing customers	Account management, CS
Churn ARR	Annualized recurring revenue lost from cancelled customers	Customer success, product
Contraction ARR	Downgrades, seat reductions, or pricing tier drops	Account management

For a company that added $5M in New ARR, $2M in Expansion, lost $1.5M to Churn, and $500K to Contraction, net new ARR is $5M. The base grew by $5M.

Why Net New ARR Is the Board-Level Metric

Public SaaS investors and private boards treat net new ARR as the cleanest proxy for durable growth. It combines go-to-market efficiency with retention health. A company can juice new ARR with aggressive discounting, but if those customers churn quickly or contract at renewal, net new ARR catches it. A company can hide a weakening new business motion with strong expansion from a few large accounts, but over time that pattern also shows up.

Pair net new ARR with net revenue retention for a complete picture. Net new ARR tells you total change. NRR tells you how much of that change comes from the installed base versus new acquisition. Together they show the shape of the growth.

Common Mistakes in Calculating Net New ARR

The most frequent error is double-counting or missing pieces of expansion. When an existing customer upgrades their plan, the full new ACV is not expansion. Only the incremental portion above their previous ARR counts. A customer at $100K/year who upgrades to $150K/year contributes $50K of expansion ARR, not $150K.

Similarly, contraction is often missed. A customer who renews at a lower price or fewer seats still renewed — no churn event shows in the system — but their ARR decreased. That is contraction, and it has to be captured separately.

Another common error is mixing booked ARR and billed ARR in the calculation. Net new ARR should be consistent with how the company reports ARR overall. If the company reports billed ARR to the board, net new ARR should be calculated on the same basis. Mixing the two creates reconciliation gaps that take weeks of finance time to resolve.

How Net New ARR Feeds the Plan

Every annual plan in a SaaS company ultimately resolves to a net new ARR target. If you need to grow from $100M to $130M ARR, the plan is $30M of net new ARR, further segmented into new business, expansion, and retention targets. Those sub-targets drive quotas, headcount plans, and marketing budgets.

Where planning often goes wrong is underestimating the drag from churn and contraction. A plan that targets $30M of net new ARR against a base where $15M is projected to churn requires $45M of gross adds. That is a very different sales capacity and marketing investment question than planning for $30M of gross adds. Revenue forecasting done well separates these components and makes the gross-versus-net conversation explicit. For more on how to think about gross vs. net in planning, see the revenue forecasting guide and the ARR glossary entry.