What is ARR Growth Rate?
ARR growth rate is the percentage change in Annual Recurring Revenue between two periods, usually year over year. It shows how quickly the recurring revenue base is expanding from new logos, expansion ARR, price increases, and upsells, after accounting for churned contracts, downgrades, and negative net new ARR.
In practice, finance teams look at ARR growth together with MRR growth rate, logo churn rate, revenue churn, gross and net revenue retention, ACV and TCV per customer, and metrics like LTV:CAC, CAC payback period, SaaS quick ratio, burn multiple, and Rule of 40 to judge whether growth is durable, efficient, and attractive to investors.
Compared with simple “top-line growth,” ARR growth rate focuses only on recurring revenue and strips out one-off or non-recurring items, making it the core signal for subscription and SaaS businesses. It’s also frequently analyzed by cohort (net new ARR by period or by customer vintage) and combined with ARPA / ARPU trends to understand whether growth comes from adding more customers, increasing contract size, or pushing through price increases.
Formula
You can also express the numerator as net new ARR over the period, so that where net new ARR already reflects new ARR, expansion ARR, contraction, and churn.
Example
A SaaS company starts the year with ARR of \$1,200,000 and ends the year at \$1,800,000. The change in ARR is \$600,000; plugging into the formula:
A 50% ARR growth rate places the company in a “hyper-growth” profile for many mid-market SaaS benchmarks. If that same business also posts net revenue retention above 120%, a SaaS quick ratio above 4x, a healthy gross margin, and a reasonable burn multiple or positive free cash flow margin, it will typically command strong valuation multiples and support long-term enterprise value creation.