An ARR bridge (ARR waterfall) decomposes change in annual recurring revenue over a quarter or year into new logos, expansion, churn, and contraction.

How it works

Finance starts with opening ARR, adds new ARR from first-time customers and expansion ARR from upsells, then subtracts churned ARR (lost customers) and contraction ARR (same customer paying less). The closing ARR should tie to the live subscription ledger—bridges that do not reconcile invite diligence pain.

Boards compare bridges across quarters: improving expansion and falling churn signal product-market fit deepening; growth only from new logos with high churn suggests a leaky bucket.

Why it matters

• Founders: Build bridges monthly so fundraising decks are not a fire drill. Segment by customer size or product line when stories differ.
• Investors: Bridges feed net revenue retention and CAC payback analysis—ARR alone is incomplete.
• Operators: Customer success owns contraction and churn lines; sales owns new and expansion.

Common mistake

Showing gross new ARR in headlines while burying churn in a footnote. Investors normalize for net bridge quality every time.

Related ideas

ARR, ACV expansion, net revenue retention, and cohort retention analysis.