Net New ARR
The annualized net change in recurring revenue in a period: new and expansion inflows minus contraction and churn outflows.
◆ Currency
Formula
Built from
What it measures
Net New ARR is the arithmetic sum of four flows: new-customer acquisition, existing-customer expansion, existing-customer contraction, and customer loss. It's a twelve-month view of the revenue movements that happened in a specific period — the same flows your monthly Net New MRR tracks, just annualized so you can hold them against your annual plan and investors' expectations.
Why it matters
Operators track Net New ARR to answer one question: are we hitting our growth commitment this year? It is the period flow that moves total ARR, so it is the cleanest read on momentum. Investors build the magic number on it (Net New ARR ÷ prior-period Sales & Marketing spend) to judge whether growth is being bought efficiently. Board decks live on this metric because total ARR can rise while Net New ARR shrinks — and that gap is where the real story is.
How to read it
Net New ARR > 0 means you added more recurring revenue than you lost — the business is growing. Net New ARR < 0 means churn and downsells are outpacing new and expansion, and the base is shrinking. Never read the net alone: +$500K looks great until you see it came from $2M new ARR against $1.5M churn, which is a leaky bucket masked by aggressive new-logo selling. Compare it to the prior period and to plan; if Net New ARR is falling while total ARR still climbs, your growth is decelerating even as the stock looks healthy. Pair it with the magic number to see whether the growth is efficient or discount-fueled.
What good looks like
Good
Net New ARR is consistently positive and growing as a percentage of plan, with inflows (new + upsell) decisively outpacing outflows (downsell + churn) period over period.
Watch
Net New ARR is still positive but declining quarter-over-quarter, or inflows and outflows are converging — a sign of execution risk, market headwind, or rising churn.
Bad
Net New ARR is flat or negative; churn and downsells are offsetting or erasing new-customer wins, and total ARR has stalled.
Watch-outs
- Confusing Net New ARR (a period flow) with Total ARR (a point-in-time stock). A rising Total ARR can sit on top of shrinking Net New ARR — always read the flow, not just the balance.
- Annualizing blindly. Net New MRR × 12 only equals true Net New ARR when contract terms are uniform; a quarter heavy on 3-year deals can spike ARR while MRR stays flat.
- Forgetting to annualize the outflows. A $100K annual contract downgraded to $80K is a full $20K of annual drag — count the whole annualized loss, not just the months remaining in the period.
- Logging churn as a bare negative number without the reason. Product-driven churn and budget-driven churn look identical in the raw figure; segment by cause so you can actually diagnose the cause.
Worked example
Hypothetical
During Q1 you sign 4 new customers worth $100K, $150K, $80K, and $120K ARR ($450K new). Two existing customers upgrade for a combined +$60K. One customer downgrades by $30K. One large customer churns for $200K. Net New ARR = $450K + $60K − $30K − $200K = $280K.