Net New ARR
The total change in ARR over a period, combining new customer ARR, expansion ARR, and reactivation ARR minus churned ARR and contraction ARR. The true measure of growth after accounting for losses.
Net New ARR Is the Only Growth Number That Matters
Gross new ARR is for sales team celebrations. Net new ARR is for board conversations. It is the difference between what you gained and what you lost. A company can book $2M in new ARR and still only grow $800K if churn and contraction eat the rest. Net new ARR is the honest growth metric.
Breaking Down the Components
| Component | Source | Direction |
|---|---|---|
| New ARR | First-time customers | Positive |
| Expansion ARR | Upsells, cross-sells | Positive |
| Reactivation ARR | Returning churned customers | Positive |
| Contraction ARR | Downgrades | Negative |
| Churned ARR | Cancellations | Negative |
What Net New ARR Tells the Board
Net new ARR answers three questions simultaneously: Is our acquisition engine working? Is our retention engine working? Is our expansion engine working? If net new ARR is declining while gross new ARR is flat, your retention is degrading. If net new ARR is growing while new logo count is flat, your expansion motion is carrying the load. Each pattern requires a different response.
Setting Net New ARR Targets
Most growth-stage SaaS companies target 80-100% year-over-year net new ARR growth. That means if you added $2M in net new ARR this year, you should target $3.6-4M next year. The composition matters — over-relying on new logos is expensive, while a strong expansion contribution makes growth more efficient and sustainable.
Frequently Asked Questions
How do you calculate net new ARR?
Net New ARR = New ARR + Expansion ARR + Reactivation ARR - Churned ARR - Contraction ARR. If you added $500K in new customer ARR, expanded $200K, and lost $150K to churn and contraction, net new ARR is $550K.
Why is net new ARR better than gross new ARR?
Gross new ARR ignores churn and contraction. A company adding $1M in gross new ARR but losing $600K to churn only has $400K in net new ARR. Gross new ARR makes your GTM look better than it is. Net new ARR shows the real growth.
