What It Means (Simple Explanation)
New ARR (New Annual Recurring Revenue) refers to the annual recurring revenue generated exclusively from newly acquired customers during a specific period. It excludes changes to existing customer accounts, including expansions, renewals, and churn. This metric solely captures the incremental recurring revenue from first-time customers.
Why New ARR Matters
- Growth Sources: Helps investors understand how much growth is coming from acquiring new customers versus expanding existing relationships.
- Land and Expand: Provides an initial baseline for ARR growth for larger accounts before additions from expansions, price increases, and contract renewals.
- Sales Performance Insight: Used with ACV (annual contract value) to evaluate the effectiveness of the sales organization over time.
How to Measure New ARR
- Sum ARR from all first-time customers onboarded during the period.
- Exclude one-time and other non-recurring charges such as implementation, professional services, and pre-sales consulting engagements.
- Depending on company policy, it may include ARR estimated from usage-based pricing arrangements and monthly pay-as-you-go plans.
Relationship to ARR Components
New ARR is a key building block in the ARR waterfall:
Ending ARR = Beginning ARR
+ New ARR
+ Expansion ARR
– Contraction ARR
– Churn ARR
+ Restart ARR
Understanding New ARR helps isolate growth derived from new acquisition versus growth or loss from your existing base.
