Top-line ARR growth tells you how big the business is getting. Net ARR tells you how much of that growth comes from inside your existing customer base versus from new customers. Best-in-class subscription businesses see strong net ARR — their existing customers contribute positive growth even before any new acquisition. Struggling businesses see net ARR decline, where they need new customers just to stand still.
The net ARR formula
Net new ARR = New ARR + Expansion ARR − Contraction ARR − Churned ARR
- New ARR — annualized recurring revenue from new customers signed in the period.
- Expansion ARR — additional recurring revenue from existing customers (upsells, plan upgrades, frequency increases).
- Contraction ARR — lost recurring revenue from existing customers (downgrades, frequency decreases).
- Churned ARR — lost recurring revenue from cancelled subscriptions.
Net revenue retention — the partner metric
Net revenue retention (NRR) is the percentage version: (Starting ARR + Expansion − Contraction − Churn) / Starting ARR. NRR above 100% means existing customers alone grow the business. NRR below 100% means new acquisition has to outpace existing-customer erosion. Top-tier SaaS hits 120–140% NRR; subscription commerce typically runs 70–95% (it is harder to expand a consumer subscription than a B2B one).
What net ARR tells you
- Healthy growth from inside. Net ARR positive from existing customers means the business compounds even without new acquisition.
- Acquisition-dependent growth. Net ARR negative from existing customers means you are running fast just to stand still — a fragile growth pattern.
- Expansion opportunity. If expansion ARR is small relative to base ARR, there is likely an upsell or frequency-increase opportunity you are not capturing.
See annual recurring revenue for the master metric and net revenue retention for the percentage view.