Simple Explanation
ARR movements track the changes in a company’s Annual Recurring Revenue over time. These changes come from new bookings, renewals, expansions, contractions, and churn. Each movement affects ARR in a different direction, and finance teams monitor them to explain growth and retention.
Example
If your starting ARR is $10M: – You add $2M in new customers – Lose $1M to churn – Expand $500K through upsells
Your ending ARR is $11.5M. The ARR movements would be: – +$2M New ARR – -$1M Churn ARR – +$500K Expansion ARR
Why It Matters
ARR movements are foundational to understanding the growth dynamics of a SaaS company. They are included in almost every board deck, budget model, and investor due diligence process. Breaking ARR into its movement components provides actionable insights that reveal how retention and churn are influencing ARR as compared to bookings and upsells.. For example, strong New ARR with high churn could point to GTM misalignment, not sustainable growth.
How It Works
- Start with prior period’s ARR balance (e.g., Jan 1 = $10M)
- Add New ARR: new customer subscriptions signed in-period
- Add Expansion ARR: upsells, cross-sells, add-ons to existing customers
- Subtract Contraction ARR: customer downgrades or usage decreases
- Subtract Churn ARR: customer cancellations or non-renewals
- Ending ARR = Starting ARR + Net ARR Movement
- Segment by product, geo, plan, or rep to diagnose performance
Common Headaches
- Manual spreadsheet tracking creates version control and formula errors
- Upsells are handled as new contracts in billing system, creating misclassification of ARR movements as new vs expansion
- Customers’ pause subscriptions are treated as cancellations creating inflated churn numbers.
- Land and expand motions with new business units misclassified as new ARR vs expansion
Best Practices
- Use a finance owned system as source of truth for ARR mechanics, rather than sales-owned CRM
- Track ARR movements in a commercial SaaS application vs a spreadsheet
- Create exception procedures for subscription pauses, ramp up deals, billing consolidations following a merger
- Define policy for timing of changes – contract signature, go-live, or aligned with GAAP revenue recognition
- Align on definition of new vs expansion for accounts with parent child relationships
When to Use
During board reporting, forecasting, budget reviews, and performance analysis across GTM functions. Also critical during fundraising and due diligence.
Real SaaS Takeaway
Clean ARR movement tracking lets you explain every dollar of ARR change — not just the net number.
Frequently Asked Questions
What’s the difference between contraction ARR and churn ARR?
Churn is full customer loss; contraction is partial revenue loss from a retained customer.
Is ARR movement the same as revenue movement?
No. ARR reflects subscription value annualized, not GAAP revenue timing.
Can expansion ARR offset churn in NRR?
Yes. That’s exactly how NRR >100% happens—expansions exceed losses.
Other Glossary Terms
Subscription Pause
Credit Memo vs Debit Memo
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