Net New ARR

What is Net New ARR?

Net New ARR is the total incremental Annual Recurring Revenue added during a specific period from all sources, including new customer acquisitions, expansion from existing customers, minus revenue lost to downgrades and churn. It represents the net change in ARR and serves as the primary metric for measuring overall SaaS revenue growth.

In B2B SaaS business models, Net New ARR captures the complete picture of revenue momentum by accounting for all positive and negative changes to the recurring revenue base. Unlike metrics that isolate individual revenue streams, Net New ARR provides executives with a single number that answers the fundamental question: "How much did our recurring revenue grow this period?" This metric drives quarterly planning, sales compensation, pipeline coverage targets, and growth forecasts. For venture-backed companies, Net New ARR directly influences valuation multiples and fundraising narratives, as it demonstrates the company's ability to sustainably scale revenue. The metric typically breaks down into four components: new logo ARR from first-time customers, expansion ARR from upsells and cross-sells, contraction ARR from downgrades, and churned ARR from lost customers.

Key Takeaways

• Comprehensive growth metric: Combines new customer revenue, expansion, downgrades, and churn into a single net figure

• Pipeline planning foundation: Net New ARR targets drive required pipeline coverage ratios and sales capacity planning

• Component-level visibility: Breaking down Net New ARR by source reveals growth mix and efficiency trends

• Forward-looking indicator: Quarter-over-quarter Net New ARR trends signal accelerating or decelerating growth

• Executive KPI: Most common metric used in board reporting and investor communications for SaaS companies

How It Works

Net New ARR calculation begins by identifying all ARR movements during a measurement period, typically measured monthly or quarterly. The formula aggregates four distinct revenue streams: new logo ARR (revenue from customers who signed their first contract), expansion ARR (additional revenue from existing customers through upsells, cross-sells, or usage increases), contraction ARR (revenue reductions from downgrades or seat decreases), and churned ARR (lost revenue from cancelled contracts).

The mathematical formula is: Net New ARR = New Logo ARR + Expansion ARR - Contraction ARR - Churned ARR. For example, if a company adds $500K in new customer ARR, $200K in expansion ARR, loses $50K to downgrades, and $100K to churn in a quarter, the Net New ARR would be $550K ($500K + $200K - $50K - $100K).

This comprehensive view allows revenue leaders to diagnose growth health beyond topline numbers. A company might achieve $1M in Net New ARR through two very different scenarios: Scenario A with $1M new logo ARR and $0 expansion (indicating weak retention and expansion), or Scenario B with $600K new logo ARR and $500K expansion ARR minus $100K churn (indicating strong customer expansion offsetting some churn). The composition matters significantly for growth sustainability and Customer Lifetime Value (LTV).

Revenue operations teams track Net New ARR against targets to assess whether pipeline generation, conversion rates, and customer success programs are performing as planned. According to SaaStr research, early-stage SaaS companies targeting $10M ARR typically need $2-3M in Net New ARR annually, requiring continuous pipeline coverage of 3-5x the quarterly Net New ARR target depending on win rates.

Key Features

• Multi-source revenue aggregation: Captures all ARR changes from new, existing, and lost customers in one metric

• Period-over-period comparability: Enables consistent tracking of growth velocity across quarters and years

• Decomposable by segment: Can be analyzed by customer size, industry, geography, or product line

• Drives compensation plans: Most SaaS sales and customer success teams have quotas tied to Net New ARR components

• Board-level metric: Standard KPI in SaaS financial reporting and investor presentations

Use Cases

Quarterly Business Planning and Forecasting

Finance and revenue operations teams use Net New ARR targets to build bottoms-up ARR forecasts and capacity plans. By setting quarterly Net New ARR goals (e.g., $2M in Q2), leaders can work backward to determine required pipeline coverage, sales capacity, and marketing qualified lead targets. For instance, with a 25% win rate and $50K average contract value, achieving $2M Net New ARR requires approximately 160 sales-qualified opportunities, which then drives marketing's lead generation targets and sales development headcount planning.

Sales Compensation and Quota Setting

Sales leadership structures compensation plans around Net New ARR components to align team behavior with company priorities. Account executives typically carry quotas for new logo ARR, while account managers or customer success managers carry expansion ARR targets. A company might set an AE quota of $800K new logo ARR annually while assigning the customer success team a collective expansion ARR target of $300K. This approach ensures balanced focus on both new customer acquisition and existing customer growth, with Net Dollar Retention (NDR) metrics informing the appropriate new vs. expansion mix.

Investor Reporting and Growth Narrative

SaaS companies report Net New ARR trends in board meetings and investor updates to demonstrate growth momentum and trajectory toward next funding milestones. Investors evaluate not just the absolute Net New ARR number but also the growth rate (is Net New ARR accelerating quarter-over-quarter?) and composition (what percentage comes from new vs. expansion?). A company showing $1M, $1.5M, $2.2M in successive quarterly Net New ARR demonstrates strong acceleration, while declining Net New ARR signals potential market saturation or execution challenges requiring investigation.

Implementation Example

Here's a comprehensive Net New ARR tracking framework with quarterly breakdown and component analysis:

Net New ARR Waterfall Analysis

Q1 2026 Net New ARR Breakdown
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Starting ARR (Jan 1):                        $8,500,000

Revenue Additions:
├─ New Logo ARR:                    +$650,000
│  ├─ Enterprise (>$100K):            $300,000 (3 deals)
│  ├─ Mid-Market ($25K-$100K):        $250,000 (8 deals)
│  └─ SMB (<$25K):                    $100,000 (12 deals)
│
└─ Expansion ARR:                   +$280,000
   ├─ Upsells (tier upgrades):        $180,000
   ├─ Cross-sells (add-on products):  $80,000
   └─ Usage overages:                 $20,000

Revenue Reductions:
├─ Contraction ARR:                 -$60,000
│  ├─ Downgrades:                     $45,000
│  └─ Seat reductions:                $15,000
│
└─ Churned ARR:                     -$120,000
   ├─ Voluntary churn:                $75,000 (8 customers)
   └─ Involuntary churn:              $45,000 (5 customers)

Net New ARR (Q1):                            +$750,000
Ending ARR (Mar 31):                         $9,250,000

Q1 Growth Rate: 8.8

Annual Net New ARR Dashboard

Net New ARR Composition Analysis

Pipeline Coverage Model

This framework enables executive teams to monitor Net New ARR performance against targets while understanding the underlying drivers. The composition analysis reveals heavy dependence on new logo acquisition with expansion underperforming, signaling a need to strengthen customer success and expansion programs to improve Net Dollar Retention.

Related Terms

• Annual Recurring Revenue (ARR): The base metric that Net New ARR measures changes to over time

• Expansion Revenue: One of the positive components contributing to Net New ARR from existing customers

• Churn Rate: The percentage of revenue lost that reduces Net New ARR

• Net Dollar Retention (NDR): Related metric measuring revenue retention and expansion from existing customers only

• ARR Forecast: Future ARR projections built on expected Net New ARR additions

• Bookings: Total contract value signed, which converts to ARR based on contract terms

• Pipeline Coverage: The ratio of pipeline to Net New ARR target needed to achieve revenue goals

Frequently Asked Questions

What is Net New ARR?

Quick Answer: Net New ARR is the total incremental annual recurring revenue added in a period from new customers, expansions, downgrades, and churn, representing the net change in a SaaS company's recurring revenue base.

Net New ARR aggregates all positive ARR additions (new logos and expansions) and subtracts all negative ARR changes (downgrades and churn) to calculate the overall growth in recurring revenue. It's the most comprehensive single metric for measuring SaaS revenue growth and serves as the foundation for pipeline planning, sales quotas, and investor reporting.

How do you calculate Net New ARR?

Quick Answer: Net New ARR = New Logo ARR + Expansion ARR - Contraction ARR - Churned ARR, capturing all sources of recurring revenue change during a period.

To calculate Net New ARR, start by adding all ARR from newly acquired customers (new logo ARR) and additional ARR from existing customers through upsells, cross-sells, or usage increases (expansion ARR). Then subtract ARR lost from customers who downgraded (contraction ARR) and ARR lost from customers who cancelled (churned ARR). The resulting figure shows your net ARR growth for the period.

What's the difference between Net New ARR and ARR growth rate?

Quick Answer: Net New ARR is the absolute dollar amount added (e.g., $500K), while ARR growth rate is the percentage increase (e.g., 10%), calculated by dividing Net New ARR by starting ARR.

Net New ARR provides the dollar value of growth, which is crucial for pipeline planning and quota setting. The growth rate contextualizes this growth relative to company size—a $500K Net New ARR quarter represents 50% growth for a $1M ARR company but only 5% growth for a $10M ARR company. Most companies track both metrics, using Net New ARR for operational planning and growth rate for strategic assessment and investor communication.

What's a good Net New ARR target for SaaS companies?

Target Net New ARR varies significantly by company stage and size. According to Bessemer's State of the Cloud report, early-stage companies (sub-$10M ARR) often target 100-200% annual growth rates (doubling or tripling ARR), while growth-stage companies ($10M-$100M ARR) typically target 50-100% annual growth, and scaled companies (>$100M ARR) target 20-50% annual growth. The absolute Net New ARR target should consider market size, sales capacity, customer acquisition cost efficiency, and Net Dollar Retention performance.

How does Net New ARR relate to bookings?

Bookings represents the total contract value (TCV) signed during a period, which may include multi-year commitments, while Net New ARR normalizes this to annual recurring value and accounts for churn. For example, if you sign a 3-year $300K contract with a customer paying $100K annually, bookings would be $300K but the ARR impact (and Net New ARR contribution) would be $100K. Additionally, Net New ARR subtracts churn and contraction that occurred during the period, while bookings only captures new contract signings. Companies track both—bookings for sales performance and Net New ARR for actual revenue base growth.

Conclusion

Net New ARR represents the single most important growth metric for B2B SaaS companies, providing a comprehensive view of revenue momentum that incorporates every revenue stream—new customer acquisition, existing customer expansion, downgrades, and churn. Unlike narrower metrics that focus on isolated revenue components, Net New ARR delivers the complete picture executives need to assess business health, set strategic priorities, and communicate growth trajectories to stakeholders.

For go-to-market teams, Net New ARR serves multiple critical functions. Sales leaders use it to establish quotas and pipeline coverage requirements. Marketing teams derive lead generation targets from Net New ARR goals. Customer success teams connect their expansion and retention programs to concrete revenue outcomes. Finance and revenue operations build ARR forecasts and capacity models around Net New ARR projections. This metric alignment across functions creates organizational focus on the behaviors and outcomes that drive sustainable SaaS growth.

As SaaS markets mature and efficient growth becomes more critical than growth at all costs, understanding Net New ARR composition grows increasingly important. Companies that optimize the mix between new logo acquisition and existing customer expansion—achieving strong Net Dollar Retention while maintaining new customer growth—build more resilient, capital-efficient businesses capable of weathering economic headwinds and achieving profitability at scale.

Last Updated: January 18, 2026