Net New ARR (Net New Annual Recurring Revenue) is the year-over-year increase in a company’s recurring revenue from subscription contracts, calculated as new ARR added plus expansion ARR, minus ARR lost from churn and downgrades in a given period. It shows whether recurring revenue is growing after accounting for both gains and losses in the existing customer base.
What Net New ARR Includes
Net New ARR typically combines four ARR components:
- New ARR: recurring revenue from brand-new customers
- Expansion ARR: increases from existing customers (upsells, add-ons, seat growth, higher tiers)
- Churned ARR: recurring revenue lost from cancellations
- Contraction ARR: decreases from existing customers (downgrades, fewer seats, reduced usage commitments)
A common expression is:
- Net New ARR = New ARR + Expansion ARR − Churned ARR − Contraction ARR
How Net New ARR Is Used
Net New ARR is used across finance and revenue teams to:
- Track growth quality: separates true recurring growth from one-time revenue
- Support planning: helps set targets for sales, customer success, and retention
- Explain performance drivers: shows whether growth is coming from acquisition, expansion, or improved retention
- Forecast recurring revenue: informs ARR run rate and longer-term revenue projections
Net New ARR is often reported monthly or quarterly and compared against quota, budget, or prior periods.
Net New ARR vs Related Metrics
Net New ARR is related to, but different from, other subscription metrics:
- Gross New ARR: usually refers to New ARR only, excluding expansion and losses
- Net Revenue Retention (NRR): measures how existing customer revenue changes, excluding new customers
- ARR run rate: the annualized value of recurring revenue at a point in time, not the change over a period
- Bookings: contracted value signed, which may differ from when ARR is recognized and start dates
Clear definitions matter because companies may treat renewals, reactivations, or usage-based commits differently.
Frequently Asked Questions
Is Net New ARR the same as ARR growth rate?
No. Net New ARR is the absolute change in ARR over a period. ARR growth rate is that change divided by starting ARR.
Does Net New ARR include renewals?
Renewals that keep ARR flat typically do not change Net New ARR. Renewals can affect it if they include expansion or contraction.
How do reactivations affect Net New ARR?
Many teams classify reactivations as New ARR or a separate category, depending on how long the account was churned and internal reporting rules.
How is Net New ARR handled for usage-based or consumption contracts?
It is often based on committed recurring amounts or an annualized baseline of expected recurring usage, with true-ups handled separately.
Why can Net New ARR be negative?
If churned and contracted ARR exceed new and expansion ARR in the period, Net New ARR becomes negative, indicating net recurring revenue decline.
