How to calculate ARR growth rate
ARR growth rate is the headline growth metric for a subscription business. It measures how fast recurring revenue is expanding, which drives valuation and planning.
The rate is more useful when decomposed. Growth from new logos and growth from expansion have very different implications, so pairing the rate with the ARR bridge tells the fuller story.
- (Now - prior) / prior The formula
- Year over year Clean comparison
- New vs expansion Decompose it
Short answer
ARR growth rate is the percentage change in annual recurring revenue between two points. Subtract prior ARR from current ARR, divide by prior ARR, then multiply by 100. If ARR grew from 8,000,000 to 10,000,000 dollars, the growth rate is 25 percent. Measure year over year for a clean comparison, and decompose growth into new versus expansion.
Step by step
Take current and prior ARR
Use ARR at two points, typically one year apart, computed consistently.
Compute the change
Subtract prior ARR from current ARR to get the absolute growth.
Divide by prior ARR
ARR growth rate equals the change divided by prior ARR, times 100.
Decompose the growth
Use the ARR bridge to split growth into new, expansion, contraction, and churn, so you see whether it is driven by new logos or a compounding base.
Worked example
ARR was 12,000,000 dollars a year ago and is 18,000,000 dollars now. ARR growth rate = (18,000,000 minus 12,000,000) divided by 12,000,000 = 6,000,000 / 12,000,000 = 50 percent year over year.
Decomposing it: if 4,000,000 dollars came from new customers and 2,000,000 dollars net from the existing base, the growth is broad-based. If most came from a single large deal, it is less durable. The rate alone does not reveal this; the bridge does.
How Ardovo handles it
Ardovo computes ARR growth year over year and period over period, and decomposes it via the live ARR bridge. Rook explains whether growth came from new logos or a compounding base, and pairs it with efficiency metrics so growth is never judged alone.
Frequently asked questions
What is the ARR growth rate formula?
Current ARR minus prior ARR, divided by prior ARR, times 100. Measure it year over year for a clean comparison, and decompose the growth into new versus expansion to understand its quality.
Why decompose ARR growth?
Because growth from new logos and growth from expansion have very different durability. The ARR bridge splits growth into new, expansion, contraction, and churn, revealing whether it is broad-based or dependent on a few large deals.
What is a good ARR growth rate?
It depends on scale: early companies may double or triple, while past 100,000,000 dollars, 40 to 50 percent is exceptional. Judge growth beside efficiency metrics, since fast growth funded by heavy burn is not the same as healthy growth.