What's the difference between expansion ARR and net new ARR for forecasting in 2027?
Expansion ARR is one ingredient; net new ARR is the whole recipe. Expansion ARR is the extra annual recurring revenue from customers you already have; net new ARR is the net change in total ARR in a period, which adds new-logo ARR and expansion ARR and subtracts contraction and churn.
The formula given by Saber is Net New ARR = New Logo ARR + Expansion ARR - Contraction ARR - Churned ARR. For forecasting, that means you do not forecast net new ARR as one number. You forecast each part with its own driver (pipeline for new logos, the installed base for expansion, renewals for contraction and churn) and then add them up.
One warning: a public company's net revenue retention is not its expansion ARR. Retention figures such as Snowflake's and Datadog's net expansion against contraction and attrition in one ratio. Details and sources are below.
The two definitions, side by side
- Net new ARRThe total incremental ARR added during a period from all sources, including new customer acquisitions and expansion from existing customers, minus revenue lost to downgrades and churn (Saber).
- Expansion ARRThe extra annual recurring revenue generated from existing customers beyond their ARR at the start of the measurement period; it excludes revenue from new customer acquisitions (Orb).
- Net new ARR formulaNew Logo ARR + Expansion ARR - Contraction ARR - Churned ARR (Saber).
- Expansion ARR formulaThe sum, across customers, of new ARR per customer minus previous ARR per customer (Orb).
So expansion ARR can only be zero or positive, while net new ARR can be negative in a bad period. Orb states that expansion ARR cannot be negative by definition and that revenue decreases belong in contraction ARR.
Two further terms complete the picture. Saber describes contraction ARR as revenue reductions from downgrades or seat decreases, and churned ARR as lost revenue from cancelled contracts.
A worked example of how they relate
Saber gives this example: a company adds $500K in new customer ARR and $200K in expansion ARR in a quarter, loses $50K to downgrades and $100K to churn, and so has $550K of net new ARR.
The same source shows why the mix matters. A company could reach $1M of net new ARR with $1M of new-logo ARR and no expansion, which Saber says indicates weak retention and expansion. Or it could reach it with $600K of new-logo ARR and $500K of expansion ARR minus $100K of churn, which Saber says indicates strong customer expansion offsetting some churn. Same headline number, very different business, and very different forecast risk.
What counts as expansion ARR
Orb lists the mechanisms that generate expansion ARR. Use your own company definition, but these are the common categories:
- More seats. Per-user pricing grows as teams add people.
- Higher usage. Usage-based models grow as customers consume more.
- Tier upgrades. Customers move from a Starter plan to a Business or Enterprise plan.
- Price increases. Annual or CPI-linked uplifts at renewal or anniversary dates.
- Cross-sell. Selling adjacent products or modules into the same account.
Orb's worked example: Customer A upgrades from $12,000 to $18,000 ARR by adding seats, Customer B moves from Basic at $6,000 to Professional at $12,000, and Customer C increases usage from $24,000 to $30,000 ARR. Each of those increases is expansion ARR. Orb also says a new division at an existing customer counts as expansion, not new, and that misclassifying the two distorts both metrics.
How to forecast each one separately
Net new ARR is a result, so build it from its components, each tied to a different driver.
- New-logo ARR comes from pipeline. Saber gives a planning example: with a 25% win rate and $50K average contract value, achieving $2M of net new ARR requires approximately 160 sales-qualified opportunities. It also says finance and revenue operations teams use net new ARR targets to work backward to pipeline coverage and sales capacity.
- Expansion ARR comes from the installed base. Orb suggests an expansion pipeline view: upcoming renewal uplifts, identified cross-sell opportunities and projected seat growth, with coverage ratios and conversion rates from expansion opportunity to closed expansion ARR.
- Contraction and churn come from renewals. Forecast them as their own lines so they are visible, not buried inside a net figure.
Timing matters too. Orb notes that expansion ARR can happen mid-term through immediate upgrades or at renewal through negotiated increases, and recommends tracking the exact month for accurate reporting and forecasting. A forecast that puts all expansion in the renewal month will be wrong for a company with many mid-term upgrades.
Keep owners separate as well. Saber says account executives typically carry quotas for new-logo ARR, while account managers or customer success managers carry expansion ARR targets. When the owners differ, the forecast should too.
No source used here publishes a standard split between new-logo and expansion ARR, so none is given. Use your own history by segment.
What public filings show: net revenue retention is not expansion ARR
Public companies rarely report expansion ARR on its own. Two usage-driven software companies instead report a retention rate that blends expansion with losses.
- Snowflake net revenue retention125% as of January 31, 2026, and 126% as of January 31, 2025 (FY2026 10-K).
- Datadog dollar-based net retentionAbout 120% trailing 12-month as of December 31, 2025, and high-110%'s as of December 31, 2024 (FY2025 10-K).
Datadog's 10-K says its calculation starts with the ARR of all customers 12 months earlier and compares it with the ARR of the same customers now. Current period ARR includes any expansion and is net of contraction or attrition, but excludes ARR from new customers. It attributes the increase in the rate to increased usage growth from existing customers.
Snowflake's 10-K defines its rate by comparing product revenue from a measurement cohort in the second year with the first year, and any cohort customer that did not use the platform in the second year remains in the calculation at zero revenue. It also says it expects its net revenue retention rate to decrease over the long term as long-standing customers become a larger portion of the base.
The forecasting lesson: a retention rate nets expansion against contraction and churn and covers only a cohort of existing customers, so you cannot read expansion ARR straight off it. Also note that these two companies price on usage; a seat-based business will see expansion behave differently.
Common forecasting mistakes
- Mixing new and expansion. Orb says to keep a clean separation between new logos and expansion revenue.
- Ignoring contraction. Orb gives the example of one customer adding 10 seats while another removes 15, which is negative net expansion; report both sides.
- Forecasting only gross adds. Saber notes the metric drives quarterly planning, sales compensation and pipeline coverage targets, so a gross figure that ignores churn can set the wrong targets.
- Treating retention rates as expansion rates. See the section above: they are different measures.
Questions people ask
Is expansion ARR part of net new ARR?
Yes. Saber lists expansion ARR as one of four components of net new ARR, alongside new-logo ARR, contraction ARR and churned ARR. Source: Saber.
Can net new ARR be negative while expansion ARR is positive?
Yes. Net new ARR subtracts contraction and churn, so heavy losses can outweigh new-logo and expansion ARR. Orb says expansion ARR itself cannot be negative. Sources: Saber, Orb.
Does a new division at an existing customer count as new or expansion?
Orb says it counts as expansion, not new. Source: Orb.
Is net revenue retention the same as expansion ARR?
No. Datadog says its dollar-based net retention rate includes expansion and is net of contraction or attrition, and excludes new customers. Source: Datadog 10-K.
How much of net new ARR should come from expansion?
No source used on this page publishes a standard figure. Use your own history by customer segment, and see the Saber example above for how different mixes can reach the same total.
Sources
- Saber: Net New ARR · Net new ARR definition, formula, worked example and planning use
- Orb: Expansion ARR · Expansion ARR definition, formula, examples, timing and pitfalls
- Snowflake FY2026 Form 10-K (SEC) · Net revenue retention definition and reported rates
- Datadog FY2025 Form 10-K (SEC) · Dollar-based net retention definition and reported rates
Pages were read on November 6, 2026. Figures are as published by the linked sources; example numbers are illustrations from vendor glossaries, not benchmarks.
Top photo: Carlos Muza kmuza / CC0 via Wikimedia Commons