How to build an ARR bridge (waterfall)
An ARR bridge (or ARR waterfall) is the single most informative view of a subscription business's growth. It turns a bare ARR change into a story: how much came from new customers, how much from expansion, and how much you lost.
Two companies can both grow ARR 20 percent, one on strong new business masking heavy churn, the other on durable expansion. The bridge is what distinguishes them, and it is why every board deck includes one.
- 4 components New, expansion, contraction, churn
- Waterfall The standard chart
- Why, not just how much What it reveals
Short answer
Build an ARR bridge by starting with beginning ARR, then adding new ARR and expansion ARR, and subtracting contraction ARR and churned ARR to arrive at ending ARR. Presented as a waterfall chart, it shows not just how much ARR changed but exactly why, which is far more useful than the net number alone.
Step by step
Start with beginning ARR
Take ARR at the start of the period. This is the left-most bar of the waterfall and the base everything moves from.
Add new and expansion ARR
Add ARR from new customers and ARR from expansion (upsell, cross-sell, seat growth) within existing accounts. These are the upward bars.
Subtract contraction and churn
Subtract ARR lost to downgrades (contraction) and to cancelled customers (churn). These are the downward bars that new and expansion must overcome.
Arrive at ending ARR
The four movements bridge beginning ARR to ending ARR. Ending equals beginning plus new plus expansion minus contraction minus churn.
How to read the waterfall
A healthy bridge shows expansion as a meaningful upward bar and churn plus contraction as small downward ones. When the down bars rival the up bars, growth is a leaky bucket even if net ARR rose.
Compare the shape over time. Growing expansion relative to churn is the visual signature of improving net revenue retention and durable growth, the opposite of new business papering over losses.
How Ardovo handles it
Ardovo builds the ARR bridge from live billing automatically, splitting every component cleanly. Rook narrates it, explaining whether the quarter's growth came from new logos or from a base that is compounding on its own, so the board story is ready.
Frequently asked questions
What is an ARR bridge?
A decomposition of ARR change over a period into new, expansion, contraction, and churned ARR, usually shown as a waterfall chart. It explains why ARR moved, not just how much, which the net number alone cannot.
What are the components of an ARR waterfall?
Beginning ARR, plus new ARR and expansion ARR, minus contraction ARR and churned ARR, ending at closing ARR. The upward bars are new and expansion; the downward bars are contraction and churn.
Why do investors want an ARR bridge?
Because it distinguishes durable, expansion-driven growth from new business masking heavy churn. Two companies with the same ARR growth can have very different quality, and the bridge is what makes that difference visible.