Gross New ARR

• By
• Chris Burgner

  Chris Burgner

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

  

Gross New ARR comes from new customers who start a paid subscription to your product or service for the first time.

Why it matters

Gross New is crucial in the ARR Build for two reasons:

1. When a customer’s subscription starts determines what cohort they are part of, which impacts any cohort analyses.
2. Gross New makes up the vast majority of Net New ARR for early-stage companies. As the business scales, the balance shifts, and a higher concentration of Net New ARR comes from Expansion ARR from existing customers. This has significant implications for your ability to forecast ARR in the early days—a pain point even the most successful tech companies have had to contend with.

In the early days at Snowflake, Brad Floering, the company’s Head of FP&A, realized the accuracy of his topline forecast largely depended on his team’s ability to predict the distribution of New vs. Existing customers and the expected usage behavior for those newly acquired customers.

Because this segment of the business was so important in getting the overall forecast right, the company eventually had to create an entire forecast model just for new customers, which they referred to as the Cold Start model.

How to optimize it

Dialing in the performance of Gross New ARR requires a deep understanding of your company’s Ideal Customer Profile (ICP). Your ICP is a generalized representation of types of people or companies you want to sell to (and hopefully are also building for). You’ll want to be clear on what pain points your product solves for them, how you differentiate your solution from the competition, and how you price your product based on that.

Operationalizing this means your sales, marketing, product, and growth teams must be aligned and in lockstep with your go-to-market strategy.

You can help them in this journey by providing clear and concise reporting on the upstream metrics that feed into Gross New ARR, such as top-of-funnel reporting and segmenting performance by firmographic attributes (e.g., geography, company size, buyer persona).

Levers to pull

• Increase lead volume
• Improve funnel conversion
• Increase the starting price point