Any planning process often follows the same routine for finance teams—aggregating and manipulating data, spending hours on spreadsheets, and adjusting formulas and models to meet stakeholder needs.
That work becomes even more demanding when you add cohort waterfalls into the mix. While these models can uncover performance trends over time, building them is no small feat.
Take a SaaS revenue waterfall model, for example. Adding one to your ARR snowball model can give you a clearer, more insightful forecast from bookings to revenue. But it also calls for detailed modeling and complex formulas to get it right. That added effort often leads to skipped steps—and missed insights.
To make your revenue forecasting process as accurate and actionable as possible, you need a SaaS revenue waterfall that truly reflects the business. And you need to build and update it fast. Here’s what it takes to get it done.
What is a SaaS revenue waterfall?
A SaaS revenue waterfall—also known as a bookings to revenue waterfall—is a model that shows how booked revenue converts into GAAP revenue based on accounting recognition rules.
These models use time-based cohorts to visualize how total bookings (including new, expansion, renewal, downgrade, and churn) turn into GAAP revenue over time. In the example below, you’ll see the cohort months listed in the left-most column, helping track performance period by period.
The resulting view adds more nuance to your revenue forecast, helping you understand how top-line growth will impact fully-recognized revenue in the months, quarters, and years ahead.
SaaS revenue waterfall model vs. deferred revenue waterfall vs. revenue waterfall chart
Terms like SaaS revenue waterfall model, deferred revenue waterfall model, and revenue waterfall chart may sound similar—but they mean different things to finance teams. Knowing the differences is key to using these tools effectively for analyzing and optimizing revenue, retention, billing, and cash flow.
While a SaaS bookings to revenue waterfall uses cohorts to show how bookings convert into GAAP revenue, a basic B2C or B2B revenue waterfall chart simply shows how a starting bookings balance changes—factoring in new, expansion, renewal, churn, and downgrades. The example below illustrates this flow.
A revenue waterfall chart—or ARR bridge—is a go-to tool for CFOs and finance leaders to visualize top-line growth for business stakeholders. But unlike a SaaS revenue waterfall, it doesn’t capture how revenue is recognized over time.
Some financial tools help fill that gap with a deferred revenue waterfall report. These reports are typically used to compare the revenue recognition schedule against the deferred revenue balance, period over period. While not commonly used for planning, understanding your deferred revenue liabilities is essential for accurate balance sheet forecasting.
How to create a SaaS bookings to revenue waterfall model
Cohort modeling is one of the most complex tasks finance teams take on—especially when building a SaaS revenue waterfall or similar models. Even if you’re highly skilled in Excel, cohort calculations can be tough to set up, tricky to explain to stakeholders outside of finance, and challenging to troubleshoot or maintain once the model is in place.
<<Save time on formulas and focus on strategy with this bookings to revenue waterfall template.>>
Even though cohort modeling can stretch Excel and Sheets to their limits, spreadsheets are still the go-to tool for revenue forecasting in many organizations.
If you’re looking to move beyond spreadsheets and simplify the SaaS bookings-to-revenue waterfall process, some financial software tools can help you build out this complex model in just a few minutes. (You can always reach out for a demo if you want to see how it works in action.)
Whether you’re using spreadsheets or a specialized tool, there are a few essential inputs for building a SaaS revenue waterfall:
- New ARR bookings forecast: a reliable forecast of new business bookings—whether through a sales capacity model, an ARR snowball, or another top-line planning method.
- Bookings from retention and churn: bookings from renewals, upsells, expansions, churn, and retention. These, combined with new ARR, make up your total bookings per period.
- Revenue recognition schedule: a timeline that shows how booked ARR is recognized over time. For instance, with annual contracts, revenue is usually recognized at 8.33 percent per month over 12 months.
The trickiest part in spreadsheets? Getting the SUMIF formulas right. To recognize revenue from one cohort evenly over 12 months, your formula would look like this:
- SUMIF(total bookings row, forecast period row, cohort month) / 12
You’d then apply that formula format across each cohort month for the full forecast period.
Keep in mind that a SaaS revenue waterfall usually isn’t built in isolation. It’s often layered into top-line models—so you’ll need to ensure you’re pulling in forecasted bookings accurately and in sync with your broader planning framework.
Don’t go chasing waterfalls — use our SaaS revenue waterfall template
Don’t spend hours (or days) every month trying to recreate the waterfall model you need to translate ARR bookings into a recognized revenue forecast.
Download our spreadsheet-based SaaS bookings to revenue waterfall template to get started faster. And streamline your other waterfall use cases by downloading our other templates:
- Bookings to cash waterfall model
- Revenue bridge chart
- P&L waterfall chart
- Sales pipeline waterfall chart
But don’t stop at the spreadsheet template. When you’re ready to unlock more strategic value, modern financial tools can help you move beyond manual, spreadsheet-based waterfall models.
Some platforms offer advanced reporting and analytics capabilities—featuring pre-built SaaS metrics, customizable reports, and real-time actuals. They can also include cohort-based planning features to automate even the most complex waterfall use cases.
Frequently asked questions
What is an ARR waterfall?
An ARR waterfall is a financial modeling approach that uses time-based cohorts to show how forecasted bookings turn into recognized revenue, based on your revenue recognition schedule. Leveraging modern financial modeling tools can streamline the process and improve both speed and accuracy.
Sometimes, the term “ARR waterfall” also refers to a simpler visualization that breaks down ARR growth by new, expansion, downgrade, and churn revenue. This is more commonly called an ARR or revenue bridge chart.
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How do you model SaaS revenue?
Two common approaches for modeling SaaS revenue are the sales capacity model and the ARR snowball model. Sales capacity models forecast revenue based on new account executive hiring plans and expected quota attainment. ARR snowball models factor in new customer ARR, upsell and expansion ARR, and churn to calculate the running ARR balance for each period.
What is the difference between billings and revenue?
In SaaS forecasting, it’s important to differentiate between bookings, revenue, and billings. Bookings reflect total contracted ARR. Revenue is how that ARR is recognized over time. Billings represent when customers are invoiced—and when cash is collected.