ARR Waterfall

What is ARR Waterfall?

ARR Waterfall is a comprehensive metric used to visualize the development of Annualized Recurring Revenue (ARR) over specific time periods. It breaks down ARR into several categories: Starting ARR, New ARR, Expansion ARR, Contraction ARR, and Churn ARR. This granular approach helps businesses understand the dynamics of their recurring revenue streams in detail.

Why is it important to measure our ARR Waterfall?

The ARR Waterfall is a vital metric and analytical tool for any SaaS company, providing:

Holistic Revenue Overview: It delivers an in-depth view of revenue trends over various periods, making it crucial for executive dashboards and business analytics.
Strategic Guidance: Consistent monitoring of ARR Waterfall offers valuable insights for shaping business strategies, optimizing resource distribution, adjusting sales and marketing efforts, and driving product improvements.
Growth and Risk Analysis: This metric identifies areas of revenue growth and potential risks, supporting strategic decisions aimed at boosting customer retention and acquisition.

How is ARR Waterfall Calculated?

The ARR Waterfall is derived by segmenting the overall ARR into specific categories:

Starting ARR: The ARR at the start of the period.
New ARR: Revenue from newly acquired subscriptions within the period.
Expansion ARR: Additional revenue from existing customers who have increased their subscription levels.
Contraction ARR: Revenue loss due to customers decreasing their subscription levels.
Churn ARR: Revenue lost from subscription cancellations.

These segments are tracked over time to offer insights into ARR growth, leading sources of ARR, segments with significant expansion or contraction, and historical ARR changes across different customer groups. The template also provides in-period views, enabling businesses to make timely decisions based on up-to-date ARR trends.

For a deep dive into ARR calculations, explore our article, Navigating the Complexities of ARR Calculations

All the SaaS revenue metrics you need

ARR is only one of the hundreds of SaaS metrics that are available out-of-the-box to users of the Sightfull revenue analysis and optimization platform. They include all the critical metrics required for SaaS companies - from indicators regarding campaigns and leads, through those that track pipeline, conversion and bookings, and all the way to later signals such as retention and expansion.

These highly precise customizable metrics are automatically calculated based on a large repository of SaaS industry standards, best practices and benchmarks. This saves lots of time for RevOps teams since they don’t have to rely on data analysts for support, waste time on error-prone spreadsheets, or manually create and update dozens of reports.

Sightfull users also receive dozens of pre-built dashboards based on these metrics, enabling them to easily investigate revenue trends at a highly granular level, identify their root causes, and act on proactive insights regarding time-sensitive business issues.