Free ForeverNo SignupAll 4 ARR ComponentsUpdated 2026

ARR Waterfall Calculator

Break down exactly where your ARR grew and where it shrank — the four-bucket analysis every board deck requires.

The ARR Waterfall decomposes ARR growth into four buckets: New ARR (from new customers), Expansion ARR (upsells and upgrades from existing customers), Churned ARR (cancellations), and Contraction ARR (downgrades). Net New ARR = New + Expansion − Churn − Contraction. This is the single most important slide in a board deck — it shows not just how fast you're growing, but the quality and sustainability of that growth.

Starting ARR

ARR at the beginning of the quarter

New ARR

ARR added from new customer logos this quarter

Expansion ARR

ARR added from upsells, seat growth, or upgrades on existing accounts

Churned ARR

ARR lost from cancellations and non-renewals

Contraction ARR

ARR lost from downgrades on existing accounts

The Formula

Net New ARR = New ARR + Expansion ARR − Churned ARR − Contraction ARR

In plain English

Add New ARR and Expansion ARR, then subtract Churned ARR and Contraction ARR. The result is Net New ARR. Add this to Starting ARR to get Ending ARR.

Worked Example

$600K new + $200K expansion − $180K churn − $60K contraction = +$560K Net New ARR. Ending ARR: $4.8M + $560K = $5.36M.

Why the ARR Waterfall Is the Most Important Board Metric

Total ARR growth is a lagging number — it hides whether growth is healthy or fragile. Two companies both growing ARR 50% year-over-year can have completely different underlying dynamics: one driven by efficient new logo acquisition, the other by desperate upsells to offset a churn crisis.

The ARR waterfall separates signal from noise. New ARR shows your ability to attract new customers. Expansion ARR shows product stickiness and upsell motion. Churned ARR reveals retention health. Contraction ARR reveals pricing and value-realisation problems. Together they tell the full story.

The Investor Lens

Series A and B investors analyse the ARR waterfall to understand whether growth is repeatable. High new ARR from a scalable channel signals repeatable growth. High expansion ARR signals product-led growth and strong NRR. High churned ARR — even with strong new ARR — signals a "leaky bucket" that will become capital-inefficient at scale.

Understanding NRR from the Waterfall

Net Revenue Retention (NRR) can be read directly from the waterfall: (Starting ARR − Churned ARR − Contraction ARR + Expansion ARR) ÷ Starting ARR. Above 100% means existing customers grow your ARR on their own — even if you acquire zero new customers, total ARR increases.

Companies with 120%+ NRR can often sustain strong growth rates while reducing new logo acquisition spend — a compounding advantage that accelerates as the ARR base grows.

Expansion vs New ARR: What the Mix Tells You

Early-stage SaaS (< $5M ARR) typically shows 80–90% of growth from new logos — there aren't enough existing customers to generate meaningful expansion. As ARR scales, healthy companies shift to 30–50% of growth from expansion, driven by upsell, cross-sell, and seat growth.

A company generating 50%+ of growth from expansion at scale is signalling strong NRR, product-market fit depth, and efficient capital deployment — all premium valuation drivers.

> 100%

NRR threshold for self-sustaining growth

120%+

World-class NRR — top quartile SaaS

30–50%

Expansion share of growth at scale

< 5%

Target quarterly gross churn rate

ARR Waterfall Benchmarks by Growth Stage (2026)

Stage	NRR Target	Quarterly Gross Churn	Expansion Share	Status
Seed / Early < $1M ARR	> 90%	< 8%/qtr	5–15%	Build base
Series A $1M–$5M ARR	> 100%	< 5%/qtr	10–25%	Good
Series B $5M–$20M ARR	> 110%	< 4%/qtr	20–35%	Good
Growth $20M+ ARR	> 115%	< 3%/qtr	30–50%	Excellent
Danger zone Any stage	< 90%	> 10%/qtr	< 5%	Fix retention

Source: OpenView SaaS Benchmarks 2025 · Bessemer Cloud Index 2025 · KeyBanc Capital Markets

Common Mistakes

⚠️

Conflating gross churn and net churn

Gross churn = churned + contraction. Net churn = gross churn minus expansion. A company with 8% gross quarterly churn and 12% expansion has negative net churn — but the gross churn problem is still real and will worsen as the base grows. Always track both.

⚠️

Counting reactivations as new ARR

A churned customer who returns should be counted as "reactivated ARR" — a separate bucket — not as new ARR. Mixing reactivations into new ARR inflates apparent new logo acquisition and hides the fact that the CAC for reactivations is typically much lower than for true new logos.

⚠️

Ignoring contraction as a separate signal

Contraction ARR (downgrades) is often hidden inside net churn calculations. But contraction has different root causes from full churn — it typically signals pricing misalignment, ROI questions at renewal, or competitive pressure on features. Separating it from cancellations enables different interventions.