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.
Measured as
Ending ARR = starting ARR + new ARR + expansion ARR - contraction ARR - churned ARR
Misused when
- Mixing bookings or cash with ARR movements.
- Double-counting expansion as new ARR for the same account.
Operator takeaway
- 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).
- Keep ARR Waterfall consistent by cohort, segment, and period before you use it as a decision signal in planning or reporting.
- Interpret the metric alongside retention, margin, or payback so one ratio does not hide the real operating trade-off.
Next decision
- Quantify the impact with ARR Waterfall Calculator if you need to turn the definition into an operating assumption.
- Read ARR waterfall: reconcile starting ARR to ending ARR (net new ARR) if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
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.
- ARR guide: meaning, formula, MRR, bookings, and growth: A practical ARR guide covering meaning, formula, ARR vs MRR, bookings vs cash, net new ARR, waterfalls, and how to use ARR without misleading yourself.