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Net new ARR is how much your annual recurring revenue grew or shrank over a period once every gain and every loss is counted: ARR from new customers plus expansion from existing ones, minus contraction and churn. Start a quarter at €40 million, end it at €42 million, and net new ARR is €2 million, whatever the sales team booked along the way.
It settles arguments about growth because nothing gets left out. A record quarter of new deals and a bad quarter of cancellations land in the same figure, which is exactly why a sales leader having a great quarter sometimes prefers to talk about something else.
The formula has four terms. The disagreements start inside them: whether a returning customer is new business, what a currency swing does to the total, and when a renewal that hasn't been signed yet counts as lost. Two companies can both report net new ARR and mean noticeably different things.
TL;DR
Net new ARR = new ARR + expansion ARR − contraction ARR − churned ARR. With no acquisitions or currency effects, that's simply ending ARR minus starting ARR.
In our Utrecht example, a quarter with €3.6 million won and €1.6 million lost produces €2.0 million of net new ARR. Quoting the gross figure would overstate growth by 80%.
Write down the edge cases before the first report: reactivations, currency, acquired ARR and lapsed contracts still under negotiation, which CrowdStrike keeps in ARR until the customer says it won't renew.
Identical totals can hide opposite businesses. One company reaches €2.0 million mostly through expansion, another has to win €3.4 million of new ARR to cover €1.6 million of churn, and only the second one collapses when new business slows.
Boards pay on it. Freshworks ties 70% of its 2026 company bonus multiplier to quarterly net new ARR, defined as bookings less churn, excluding currency effects and acquisitions.
Work targets backwards. For €9.0 million next year, Utrecht needs €10.6 million of new ARR, or 265 deals at €40,000. Cutting losses by a quarter brings that down to 225.
Read it next to spend. Utrecht's €3.0 million of sales and marketing bought €2.0 million of net new ARR, €1.50 per euro, against €0.83 per euro of gross new ARR.
One Utrecht quarter, flow by flow
Here's an illustrative quarter for a Utrecht software company that sells compliance tooling to mid-sized European manufacturers. It starts the quarter with €40.0 million of ARR. Over the next three months:
New customers sign contracts worth €2.4 million of ARR.
Existing customers add seats, move up a tier or buy a second module, adding €1.2 million.
Customers who stay cut seats or drop a tier, taking away €0.6 million.
Customers who leave take €1.0 million with them.
€2.4 million + €1.2 million − €0.6 million − €1.0 million = €2.0 million of net new ARR. The company ends the quarter at €42.0 million, 5% up on where it started.
The sales deck for the same quarter will probably show €3.6 million, which is new plus expansion, also called gross new ARR. That figure isn't wrong. It measures what the go-to-market team won, and it's a fair basis for judging the sales team. It just isn't how much the business grew, and it's 80% bigger than the real answer.
The quarter also hides a detail that only the components show. The customers who were already paying on day one now pay €40.0 million + €1.2 million − €0.6 million − €1.0 million = €39.6 million, or 99% of the €40.0 million they started the quarter on. The existing base shrank slightly, and new logos did all of the growing.
The net new ARR formula, and the small print in each term
Net new ARR = new ARR + expansion ARR − contraction ARR − churned ARR
New ARR is the annualized value of contracts with customers who weren't paying you before. Expansion is extra recurring revenue from existing customers, through seats, tiers, usage or another product (the expansion revenue entry splits these out). Contraction is what customers who stay take away, and churned ARR is what leaves with customers who stop paying altogether. The revenue churn entry draws the line between those two in detail.
Only recurring revenue belongs in any of the four. Onboarding fees and consulting don't, and neither does the full value of a multi-year deal: a three-year contract worth €90,000 in total adds €30,000 of ARR, even though it books as €90,000. If your sales and finance reports count the same contract differently, settle the split between bookings, billings and revenue first.
Four edge cases cause most of the disagreements between teams, and between companies.
Customers who come back
A customer who cancelled in January and returns in May isn't quite new and isn't quite expansion. Some teams count the returning ARR as new, others give it a line of its own (often called reactivation or restart ARR). Either is fine. What breaks the trend is switching between them, so pick one, and show the reactivations separately if they're large enough to move the total.
Currency and acquisitions
If you bill in dollars and report in euros, a falling dollar shrinks your ARR without any customer changing anything, and a naive calculation books it as contraction. Buying another company adds its ARR overnight without a single deal. Freshworks, in the definition it uses for executive bonuses (more on that below), excludes both currency effects and ARR from acquisitions. That's a sensible default for any company that wants net new ARR to describe what its own sales and customer teams did. The net revenue retention entry shows how to convert at fixed rates.
Renewals still being negotiated
When does an expired contract become churn? CrowdStrike's 10-K for fiscal 2026 keeps a lapsed subscription in ARR while it's actively discussing a renewal, until the customer says it won't renew. Under that rule a lost customer can land in a later quarter than the one in which its contract ended. Other companies remove ARR on the end date. Neither is wrong, but the rule decides which quarter takes the hit, so write it down.
The same filing is a reminder that contraction isn't always the customer's idea. CrowdStrike says the commitment packages it offered customers after its July 2024 outage, which included discounts and extended subscription terms, have resulted in increased contraction.
Once the rules are set, net new ARR sits neatly alongside the other retention reports, because they're all built from the same flows. A revenue waterfall draws the four movements as columns between starting and ending ARR. Net revenue retention uses expansion, contraction and churn against the starting base, and gross revenue retention uses only the two losses. Agree on the four flows once and all of these reports reconcile.
Same €2.0 million, two very different companies
Now compare two other companies, each reporting €2.0 million of net new ARR for the quarter. A Rotterdam company won €1.0 million from new customers, added €1.2 million through expansion and lost €0.2 million. An Antwerp company won €3.4 million of new ARR, added €0.2 million through expansion and lost €1.6 million to churn.
On the board slide they look identical. Underneath, Antwerp needs more than three times Rotterdam's new-business output to land in the same place, which means more reps, more pipeline and a higher acquisition bill. And watch what happens when new business has a bad quarter. If both companies win a third less from new customers, Rotterdam still adds about €1.67 million. Antwerp drops to about €0.87 million, because the €1.6 million of churn doesn't shrink when sales does.
That's why we'd never report net new ARR as one number. Show the four components with the total, every quarter, and the shift from a base that grows on its own to one that has to be refilled becomes visible a year before it shows up in the total.
Why boards pay executives on net new ARR
Bookings can be inflated by multi-year deals and gross new ARR ignores churn. Net new ARR does neither, which is why it's often the number executive pay is tied to.
Freshworks' 2026 cash incentive plan, filed with its annual report, sets quarterly net new ARR targets that determine 70% of the company performance multiplier, with the rest coming from operating margin. Below 75% of the target, that part pays nothing. OneStream's 2025 executive bonus weighted net new ARR at 67%, with a threshold at 80% of target.
Look at the Freshworks definition again, though: bookings less churn, excluding currency and acquisitions. That's a sensible definition, and it's also its own. Any comparison between your net new ARR and a peer's needs the definitions side by side first.
Public figures also show how lumpy the number is. CrowdStrike ended fiscal 2026 with $5.25 billion of ARR, of which $1.0 billion was net new ARR added during the year, up from $806.7 million the year before. The same filing notes that net new ARR is typically greater in the second half of the year, particularly in the fourth quarter. Compare each quarter with the same quarter a year earlier, not with the one before it.
If your executives are paid on net new ARR while account executives are paid on gross bookings and nobody is paid on retention, the incentives pull apart. That's worth fixing in the sales compensation plan before it shows up in the numbers.
Working backwards from next year's target
A net new ARR target is easier to plan for once it's broken back into its parts. Say Utrecht's board wants €9.0 million of net new ARR next year. If the current quarter repeats four times, the company loses €1.6 million a quarter, or €6.4 million a year, and gains €1.2 million a quarter from expansion, or €4.8 million a year. So new business has to bring in €9.0 million + €6.4 million − €4.8 million = €10.6 million.
At an average new contract of €40,000 a year, that's 265 deals. At a 25% win rate on qualified opportunities, it's 1,060 qualified opportunities. Those are the figures that feed quota capacity planning, set realistic quota attainment expectations and tell you how much pipeline coverage to build.
Now cut losses by a quarter, from €6.4 million to €4.8 million. New business only has to bring in €9.0 million, which is 225 deals and 900 opportunities. Forty fewer deals is the case for putting retention and new business in the same plan. If losses grow instead, the gap lands on the sales team as a bigger number with the same headcount.
What each euro of net new ARR cost
Net new ARR tells you how much the base moved. It doesn't say what the movement cost. Utrecht spent €3.0 million on sales and marketing in the quarter, counted fully loaded the way the customer acquisition cost entry recommends. Divided by gross new ARR, that's €0.83 per euro won. Divided by net new ARR, it's €1.50 per euro the business actually grew.
The difference between those two is the share of the budget that went into replacing revenue that left. High churn makes every euro of growth more expensive, and it hits the LTV to CAC ratio from the same direction, because customers who leave early never earn back the sales and marketing spend that brought them in. Investors run versions of this division under several names, each with its own definition, so state yours when you report it.
Both halves can be worked on. The losses come down through better fit and earlier warnings on accounts that are shrinking. The cost of new ARR comes down when reps spend less time on research and list building, which is where automating prospect research and first touches helps, and when the deals they do chase are ones your revenue engine can keep.
In short
Net new ARR is the plainest answer to whether a recurring-revenue business grew: what it gained, minus what it lost, in one figure. Its strength is that it won't let a big sales quarter cover for a churn problem. Its weakness is that the single total can still hide whether growth came from customers who stay or from a sales team running to stand still.
So report the four flows with it, fix the rules for reactivations, currency, acquisitions and lapsed renewals before anyone builds a trend line, and compare each quarter with the same one last year. Then the number is worth putting in a bonus plan, and worth planning headcount against.
Growth that lasts comes from aiming new business at customers who stay and expand, which is the thinking behind building the GTM system around retention as well as acquisition.
If your ARR movements are spread across a billing tool, a CRM and a finance sheet that never quite agree, we can set up the deal types, churn reasons and ARR reporting in your own systems, with every rule written down, and hand it over ready for your revenue operations lead to run.
Frequently asked questions
What is the difference between net new ARR and gross new ARR?
Gross new ARR adds up what you won in a period, new customers plus expansion, and ignores everything you lost. Net new ARR subtracts contraction and churn from that total. Gross is a fair measure of what the go-to-market team brought in. Net is the measure of how much the business actually grew, and the gap between them is the revenue that walked out.
Can net new ARR be negative?
Yes. If contraction and churn in a period are larger than new and expansion ARR combined, net new ARR is below zero and the recurring revenue base shrank. It happens after a wave of cancellations, during a downturn when customers cut seats, or when new business stalls for a quarter. One negative quarter can be noise. Two in a row usually point to a retention problem that sales alone can't fix.
Is net new ARR the same as bookings?
No. Bookings usually count the total value of contracts signed in a period, which can include several years of a multi-year deal, one-off fees and renewals. Net new ARR counts only the annualized recurring value of change in the base, and it subtracts what was lost. A quarter with large bookings from a few three-year renewals can produce very little net new ARR.
Should renewal price rises be reported inside net new ARR?
They raise ARR, so they flow into net new ARR, usually through the expansion line. That's legitimate, but it tells you about pricing power rather than customers buying more. If a renewal price rise is a meaningful share of expansion in a quarter, show it on its own line, so a year of price rises isn't mistaken for a year of stronger product adoption.
What is a good net new ARR figure?
There's no absolute benchmark, because the figure scales with company size. A more useful view is net new ARR divided by starting ARR, which gives the growth rate for the period, and its trend over the same quarter in previous years. The composition matters as much: a figure built on expansion is sturdier than the same figure built on replacing churned customers.
Why can net new ARR fall even when sales had a normal quarter?
Usually because losses rose or a definition changed. A cluster of renewals coming due, a large customer consolidating vendors or a currency swing can all pull the number down while new business holds steady. So can quieter changes, like counting reactivations differently or moving the date when a lapsed contract becomes churn. Checking the four components against last year's quarter shows which one moved.
How does net new MRR relate to net new ARR?
They are the same calculation on a different time scale. Net new MRR adds new and expansion monthly recurring revenue and subtracts contraction and churn, and multiplying it by twelve gives the annualized equivalent. Companies with mostly monthly plans tend to report MRR, while those with annual or multi-year contracts report ARR. Pick one for internal reporting so the components stay consistent.
How do usage-based companies handle net new ARR?
With more care, because revenue moves with customer activity rather than signed contracts. Some annualize committed spend only, others annualize recent usage, and the choice changes the result a lot. Separate committed revenue from usage above the commitment, compare each quarter with the same quarter a year earlier to remove seasonality, and keep customers whose usage drifts to zero counted as losses.
Which teams are accountable for each part of net new ARR?
Usually the revenue leader, with finance owning the definitions. Sales drives the new ARR line, customer success and account management drive expansion and losses, and RevOps keeps the data that feeds all four consistent. When only sales is held to it, retention gets neglected. When nobody is, each team reports its own flattering slice and the total becomes an afterthought.
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