Net Annual Recurring Revenue Added
What is Net Annual Recurring Revenue Added?
Net Annual Recurring Revenue (ARR) Added is the net change of annual recurring revenue from new logo bookings, expansion bookings, downsell bookings, and churn during a period. This metric will let you evaluate your business from one time period to the next and understand how each component is affecting ARR.Alternate names: Net New ARR
How to calculate Net Annual Recurring Revenue Added
Company A had $800,000 in ARR at the end of Year 1. During Year 2, the company had 10 new customers ($50,000 each), $75,000 worth of expansion revenue from upgrades, 2 churned customers ($50,000 each), and $25,000 worth of down sell bookings. Net ARR added = ($50,000 x 10) + $75,000 - $25,000 – ($50,000 x 2) = $450,000. At the end of year 2 after experiencing both contraction and incremental ARR, Company A had a positive net ARR added of $450,000.
More about this metric
Net ARR added is a great indicator of the health of your business model. It takes into consideration incremental revenue and contraction revenue at the same time. From this, you can evaluate what aspects of your business are bringing in new revenue and which ones are driving revenue away. For optimal results, make sure to track net ARR added from period to period so you can compare and see trends. If you notice new logo ARR bookings have been decreasing over time, it might be time to look at your sales and marketing efforts. Any changes in either expansion ARR bookings or downsell bookings will be caused by your customer success team. If churn starts to rise, this is an indicator to reevaluate your product and customer success team.
The goal is to have a positive net ARR added—this means that the amount of lost ARR (churned customers and down sells bookings) are not outdoing new ARR (new logo and expansion bookings). However, there may be a period in which your net ARR added is negative, meaning churn and down sell bookings were higher than the sum of new logo or expansion revenue. Having a negative net ARR added every once in a while is not something to stress about. However, if negative net ARR added numbers do start becoming a trend in your company, then you’ll want to reevaluate your product, customer success team, and sales and marketing right away.
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