What an MRR waterfall shows
An MRR waterfall is a reconciliation. It explains how you moved from starting MRR to ending MRR by breaking the change into new, expansion, contraction, and churned MRR.
Why it matters
- It turns a single MRR number into explainable drivers.
- It helps teams find whether growth is coming from new logos or expansion.
- It surfaces churn early so you can act before growth stalls.
Core formula
Ending MRR = starting MRR + new MRR + expansion MRR - contraction MRR - churned MRR.
How to use it in reporting
- Use it monthly so growth is explainable, not just a single MRR number.
- Track churned and contraction MRR trends to catch leaky growth early.
- Segment by plan/channel/customer size when blended numbers hide churn pockets.
Optional components to include
- Reactivations: customers who churned and returned (track separately).
- Price changes: separate true expansion from price uplift.
- FX impact: isolate currency effects if you report in a base currency.
Reconciliation checklist
- Starting MRR + net movements equals ending MRR for the same period.
- Movements are labeled consistently (no double counting).
- Annual prepay is normalized to MRR instead of invoices.
How to present the waterfall
- Show starting and ending MRR as anchors.
- Group new and expansion as positive drivers, churn and contraction as negative.
- Add a short narrative summary so stakeholders know what moved the metric.
Waterfall QA checks
- Ensure the waterfall ties to the finance MRR snapshot.
- Confirm that churned and contraction MRR are not overlapping.
- Validate reactivations are labeled consistently across periods.
Common mistakes
- Mixing billings/cash with MRR movements (different timing and definitions).
- Counting reactivations inconsistently (label them clearly).
- Comparing months without considering annual billing seasonality and deal timing.