Net new ARR
What is Net New ARR?
Net New Annualized Recurring Revenue (Net New ARR) is a comprehensive metric that represents the overall change in Annualized Recurring Revenue during a specific period. This metric accounts for growth from newly acquired customer accounts (new logo) and existing customers who have expanded their ARR (expansion), as well as losses due to customer contractions (contraction) and churned customers (churn). It offers a holistic view of the net increase or decrease in a company's recurring revenue.
The Importance of Measuring Net New ARR
Net New ARR is crucial for several reasons:
- Revenue Performance Overview: It provides a complete picture of the company's revenue performance and growth dynamics.
- Growth Indication: A positive Net New ARR indicates healthy growth and a robust revenue engine, showing that the company is gaining more revenue than it is losing.
- Strategic Decision-Making: Analyzing the components of Net New ARR (New Logo, Expansion, Contraction, Churn) helps identify specific drivers of revenue changes, guiding strategic decisions in customer acquisition, upselling, retention, and customer success initiatives.
- Effectiveness Evaluation: Regular tracking of Net New ARR allows businesses to evaluate the effectiveness of their revenue-generating strategies and align their sales, marketing, and customer success efforts for sustainable growth.
How is Net New ARR Calculated?
Net New ARR is calculated by considering the cumulative impact of various changes in ARR across different customer categories during the specified period:
Net new ARR = New logo ARR + Expansion ARR - Contraction ARR - Churned ARR In essence, Net New ARR is a vital metric that captures the net outcome of a company's efforts in growing its customer base and managing existing customer relationships. It's a key indicator of the health and trajectory of a company's recurring revenue streams.