The components of ARR

• By
• Chris Burgner

  Chris Burgner

  12+ years of experience, most recently as a Director of Finance at Intercom.

  

Hi, Chris here. You know, the guy who cleaned up all of Bobby’s messes when we worked together at Intercom? That one. Let me start with a story he told me when I was cutting my ARR teeth. For that, I’ll quickly adopt Bobby’s voice.

It was my first week at Intercom, and a report from one of our investors at Social Capital landed in my inbox. It was the first time I’d seen an ARR Build.

Ever been on a blind date? I have. It was like that — very daunting.

The ARR Build didn’t make much sense to me. I didn’t have a clue what it meant to record “Gross New ARR” or how to think about “Expansion”, “Contraction”, or “Churn.” And what on earth was “NRR”? So. Many. Acronyms.

But what was scary at first quickly became clear as I asked questions and listened—the recipe for any successful date.

I quickly learned why breaking ARR into its component parts was critical to understanding the story of the business and how to influence it. Each component represented a distinct and different area of the business we could impact. With this fundamental and deep understanding of Intercom’s ARR, we oriented the company. Specific teams were assigned to own different components and their associated targets. This shift in focus played a huge role in driving the hyper-growth in the years that followed.

This “first date” with ARR marked the beginning of my journey to unravel what the hell it is, how it comes to be, and how to measure and forecast it properly.

Isn’t Bobby a great storyteller?

Alright, let’s get right into it. Starting from the ground up.