How to calculate net new ARR
Net new ARR is the single cleanest measure of growth because it accounts for everything: what you gained and what you lost. A big new-business number means little if churn quietly erased half of it.
It is the numerator of the magic number and the burn multiple, so getting it right matters beyond the growth line itself. Net, not gross, new ARR is the honest figure.
- New + expansion - contraction - churn The formula
- The ARR bridge Where it comes from
- Net, not gross The honest number
Short answer
Net new ARR is the true change in annual recurring revenue over a period. Add new ARR from new customers and expansion ARR from existing ones, then subtract contraction ARR from downgrades and churned ARR from cancellations. If you added 500,000 dollars new and 200,000 expansion but lost 150,000 to churn and 50,000 to contraction, net new ARR is 500,000 dollars.
Step by step
Add new ARR
Sum the annual recurring revenue from customers newly acquired in the period.
Add expansion ARR
Add recurring revenue gained from existing customers through upsell, cross-sell, and seat or usage growth.
Subtract contraction and churn
Subtract ARR lost to downgrades (contraction) and to cancelled customers (churned ARR).
Arrive at net new ARR
Net new ARR equals new plus expansion minus contraction minus churn. It is the change from beginning to ending ARR, the same as the ARR bridge nets to.
Worked example
In the quarter you added 800,000 dollars of new ARR and 300,000 dollars of expansion. You lost 200,000 dollars to churn and 100,000 dollars to contraction.
Net new ARR = 800,000 + 300,000 - 200,000 - 100,000 = 800,000 dollars. Gross new ARR of 1,100,000 dollars would have overstated growth by nearly 40 percent by ignoring the 300,000 dollars of losses.
How Ardovo handles it
Ardovo computes net new ARR from its live ARR bridge, so every component is accounted for automatically. Rook flags when gross new business looks strong but churn is eroding net new ARR, so you see real growth, not just the top line.
Frequently asked questions
What is the net new ARR formula?
New ARR plus expansion ARR minus contraction ARR minus churned ARR. It is the true change in annual recurring revenue over a period, equal to the net of the ARR bridge from beginning to ending ARR.
What is the difference between gross and net new ARR?
Gross new ARR counts only additions (new plus expansion) and ignores losses. Net new ARR subtracts contraction and churn, so it reflects the real change in the business. Net is the honest growth number.
Why does net new ARR matter for efficiency metrics?
Because it is the numerator of the magic number and the denominator basis of the burn multiple. Using gross instead of net new ARR would overstate growth efficiency by ignoring the revenue you lost.