Definition
An ARR waterfall reconciles starting ARR to ending ARR using new, expansion, contraction, and churned ARR movements.
Formula
Ending ARR = starting ARR + new ARR + expansion ARR - contraction ARR - churned ARR
Example
Start $2.0M; +$300k new; +$200k expansion; -$80k contraction; -$120k churn = $2.3M ending ARR.
How to use it
- Use it as a reporting bridge to compute net new ARR and ARR growth.
- Segment by plan/channel/customer size to avoid blended averages hiding churn pockets.
- Use net new ARR as the numerator base for burn multiple (same period).
- Reconcile waterfall totals to your ARR snapshot each period.
Common mistakes
- Mixing bookings or cash with ARR movements.
- Double-counting expansion as new ARR for the same account.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "ARR Waterfall" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., ARR Waterfall Calculator) to sanity-check assumptions.
- Read the related guide (e.g., ARR waterfall: reconcile starting ARR to ending ARR (net new ARR)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- ARR Waterfall Calculator: Build an ARR waterfall: starting ARR + new + expansion - contraction - churn = ending ARR.
- Net New ARR Calculator: Calculate net new ARR from new, expansion, contraction, and churned ARR movements.
Guides
- ARR waterfall: reconcile starting ARR to ending ARR (net new ARR): A practical ARR waterfall guide: starting ARR + new + expansion - contraction - churn = ending ARR, with examples and pitfalls.
- Net new ARR: definition, formula, and how to calculate it: Net new ARR explained: how to calculate net new ARR from new, expansion, contraction, and churned ARR movements - plus common mistakes.