MRR Waterfall Template

Disclaimer: While Contract Sent has used their best efforts in preparing this spreadsheet, Contract Sent makes no representations or warranties with respect to the accuracy or completeness of the contents of this spreadsheet and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. You should consult with a finance professional where appropriate.

When to use a MRR waterfall template

All SaaS startups should consider using an MRR (Monthly Recurring Revenue) Waterfall chart when they are operating with a monthly or annual subscription-based or recurring revenue business model. This tool can be useful at various stages and for various purposes:

1. Understanding Growth Dynamics: If the startup is in a phase where it is actively acquiring customers and expanding, the MRR Waterfall chart can help understand what is driving growth.
2. Churn Analysis: When customer retention becomes a concern, the MRR Waterfall chart can help pinpoint the source of churn, whether it’s through cancellations or contractions and help you dig into it more.
3. Investor Communication: Sharing MRR Waterfall charts with investors can provide a transparent look at the health of the business, showing where revenue is coming from and how it’s changing over time.
4. Strategic Planning: It can be a powerful tool for internal strategy sessions, allowing the leadership team to understand which products are performing well, where customers are churning, and where opportunities for upselling or cross-selling might exist.
5. Resource Allocation: By understanding where revenue is growing or shrinking, startups can allocate resources more effectively, whether that means investing in marketing to acquire new customers or customer success to reduce churn.
6. Financial Forecasting: It’s an excellent tool for planning and financial forecasting, helping to understand trends and predict future performance based on historical data.
7. Product Development Decisions: Startups can leverage MRR Waterfall insights to make informed product development decisions. For instance, if expansion MRR is low, they might invest in creating more value through additional features or services to encourage existing customers to upgrade.
8. Performance Monitoring: Regularly tracking the MRR Waterfall helps in setting benchmarks and KPIs (Key Performance Indicators) and monitoring performance against these targets.

In general, any startup with a SaaS based revenue model should be using an MRR Waterfall chart. This is particularly true of businesses that are selling to enterprise customers. It’s not only for tech startups but can be applied across various industries and sectors where recurring revenue is key. The insights from an MRR Waterfall can guide strategic decision-making and operational adjustments, making it a valuable tool for growing and sustaining the business.

Before Sharing Your MRR Waterfall Template with Investors

Creating an MRR (Monthly Recurring Revenue) Waterfall chart requires careful attention to detail to ensure that it accurately represents your business’s actual financial situation. Here are some key things to check to ensure that your MRR Waterfall is correct:

1. Data Sources: Ensure that the data feeding into the chart is accurate and comes from reliable sources. Contract Sent is built on the premise of extracting contract data out of your contracts so you know that your source data is correct.
2. Consistent Definitions: Make sure that the definitions for New MRR, Expansion MRR, Churn MRR, Contraction MRR, and Reactivation MRR are consistent across the entire organization and aligned with industry standards.
3. Correct Calculations: Verify that the calculations for each component are correct and follow logical steps. For example, the End MRR should be the sum of the Start MRR plus New MRR, Expansion MRR, Reactivation MRR, minus Churn MRR and Contraction MRR.
4. Time Period Consistency: Check that the time periods for comparison are consistent (e.g., monthly, quarterly) and that the Start MRR for one period matches the End MRR for the previous one.
5. Handling of Discounts and Adjustments: Consider how discounts, credits, or other adjustments are handled and ensure they are consistently applied in the calculations.
6. Segmentation Accuracy: If you are segmenting the MRR by different products, customer segments, or other criteria, make sure that the segmentation is correctly applied and aligns with your business strategy.
7. Currency Consistency: If your business operates in multiple currencies, ensure that all figures are converted consistently and correctly.
8. Verification with Other Financial Reports: Cross-check the MRR Waterfall figures with other financial reports and accounting records to ensure alignment.
9. Visual Accuracy: The visualization itself should accurately represent the numbers, with no distortion or misleading scaling.
10. Accounting for Anomalies: If there are any one-time events or anomalies (e.g., a large customer churn or significant upsell), make sure these are accounted for and understood in the context of the report.
11. Check for Duplicates: Ensure that there are no duplicate entries that might inflate or deflate certain figures.
12. Legal and Compliance Considerations: Ensure that the representation of revenue aligns with legal and accounting standards relevant to your jurisdiction.
13. Historical Comparison: Compare with historical data to ensure consistency and identify any large or unexpected variations.
14. Peer Review: Having another team member or department (such as finance) review the waterfall can be a valuable way to catch errors or misunderstandings.

By taking the time to carefully verify these aspects of your MRR Waterfall, you can trust that it will provide a true and actionable view of your recurring revenue, guiding strategic decisions and performance analysis.

Common waterfall questions

Setting up definitions early on for the data that goes into your MRR waterfall data is an important step to ensure that you get use out of this tool.

Should I have a new line for every contract?

As a general practice, although it is business dependant, each line of the MRR waterfall template should be populated with a new customer contract (defined as a standalone contract). This means that if you have a Master Service Agreement in place with a customer and multiple Statement of Work documents under this agreement, each statement of work does not constitute a new line, rather an expansion of the existing line. If a customer requires a new MSA for one of their subsidiaries this constitutes a new SaaS contract and therefore a new line.

Should the start date match the signing date of the contract?

This is dependant on the jurisdiction you operate in and the relevant accounting standards that relate to revenue recognition. The most common answer is that your MRR waterfall should start recognizing revenue when the customer gains access to your platform (i.e: when you start providing the service, which should be defined in your contract). By tracking key SaaS contract metrics you will be able to stay on top of this.