Net New ARR

• By
• Chris Burgner

  Chris Burgner

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

  

Next, you want to calculate net changes in ARR from one period to the next, which we call Net New ARR. You’ll want to set goals against Net New ARR and examine benchmarks (which we’ll discuss later) to understand how well your business is growing.

Calculating Net New ARR

From here, we need to break down Net New ARR into parts based on the type of ARR, which will expose added and lost revenue in a given period.

This helps paint a clear picture of how customers’ actions impact the business.

The formula for Net New ARR looks like this:

$$\text{Net New ARR}=\text{Gross New ARR}+\text{Expansion}+\text{Contraction}+\text{Churn}+\text{Restart}$$

Category	ARR Component	Example Customer Actions
Additive Revenue	Gross New	Started a new subscription
	Expansion	Upgraded to a higher plan, increased seat count, bought an additional product or feature
	Restart	Restarted previously cancelled subscription
Lost Revenue	Contraction	Downgraded to cheaper plan, reduced seat count, removed add-ons
	Churn	Cancelled subscription, downgraded to free plan

Next we’ll cover each component in more detail, including why they are important to the health of your business, how you can influence them, and who should take ownership of that.