How is annual recurring revenue growing quarter to quarter, broken into drivers?
№ 003 · ARR waterfall
Definition
MetricQuarterly ARR movement decomposed into new, expansion, contraction, churn
Unitcurrency per quarter; % of opening ARR
Same as MRR waterfall but at the quarterly ARR level, which smooths monthly noise. Pull every quarterly contract movement from billing, classify as New, Expansion, or Churn. Compare churn bar against start ARR to read gross attrition rate. Example: Q3 ARR $5.8M, +$600K new, +$250K expansion, -$220K churn = Q4 $6.43M.
- ARR
- Annual recurring revenue. MRR at period end multiplied by 12, or the annualised value of active contracts.
- MRR
- Monthly recurring revenue. Sum of every active subscription normalised to a monthly value, excluding one-off fees.
Benchmarks
| Bottom 30% | Median | Top 30% |
|---|---|---|
| Net new ARR under 2% of opening ARR per quarter; churn plus contraction steps consuming more than half of gross additions | Net new ARR ~4.5-6% of opening ARR per quarter (19-25% annualized, per KeyBanc and SaaS Capital medians); expansion ~25-40% of gross additions depending on scale | Net new ARR of 8-12%+ of opening ARR per quarter (30-50%+ annualized at $1-20M ARR); expansion step contributing 40%+ of gross additions at scale |
Private B2B SaaS, $1M+ ARR, 2024-2025 survey data; growth medians vary strongly by ARR band, so compare within band · Annual growth medians disagree modestly across surveys (KeyBanc ~19-20%, SaaS Capital 25%, ChartMogul stabilization narrative); the spread reflects sample composition (KeyBanc skews larger, median $26M ARR). Expansion share of growth reaches 58-67% above $50M ARR per Benchmarkit-derived analysis.
| Category | Bottom 30% | Median | Top 30% |
|---|---|---|---|
| By ARR band (annual growth median) | flat to under 10% at any band | $5-20M ARR: 25-35%; $20M+ ARR: 15-25% | $1-5M ARR: 40-50%+ |
When it looks bad
Quarter after quarter the gross-additions steps shrink while churn and contraction steps stay fixed in absolute dollars, so the same losses consume a growing share of a smaller inflow.
Q1: +$800k gross, -$250k lost, net +$550k. Q3: +$500k gross, -$260k lost, net +$240k. Growth halved with no visible change in retention, purely from new-business decay.
What to do about it
- Rebalance the plan toward expansion when new-logo ARR decelerates: expansion carries roughly half the acquisition cost of new logos (Benchmarkit blended $1.40 vs new $2.00 CAC ratio) and its share of growth naturally rises with scale; build a whitespace map of top 50 accounts with a named expansion play per account.
- Lift NRR one band to buy growth: SaaS Capital data shows moving from 90-100% NRR to 100-110% adds ~5 points of annual growth; fund the CS or product work that closes the top 3 churn reasons before adding sales headcount.
- Cap the churn step with a renewal desk 120 days out for accounts above 1% of ARR, with executive sponsor assignment; concentration of churn in a few large logos is the most common driver of a suddenly deep churn step.
- Report the waterfall in constant-cohort terms once a year to separate market-driven new-business decay from self-inflicted retention decay; the two demand opposite investments.
Sources
- SaaS Capital Median growth 25% (2024); equity-backed 25%, bootstrapped 23% saas-capital.com ↗
- KeyBanc Capital Markets and Sapphire Ventures 2024E ARR growth ~19%, roughly 2x public software's ~11% sapphireventures.com ↗
- KeyBanc Capital Markets and Sapphire Ventures Growth reaccelerating from 15% to expected 20% in 2025 sapphireventures.com ↗
- ChartMogul Expansion contributes up to 40% of growth at $15-30M+ ARR; 2024 marked stabilization after the 2022-2023 slowdown chartmogul.com ↗
- High Alpha and OpenView Growth rates steadied or increased across certain ARR bands in 2024; public SaaS bellwether at 17-18% growth, 110% NDR highalpha.com ↗
- Digital Applied (reporting Benchmarkit and Maxio survey data) Expansion ARR rose from ~25% of new ARR in 2022 to ~40% in 2024, reaching 58-67% above $50M ARR digitalapplied.com ↗