An ARR bridge gives you a clear view of how your recurring revenue changes from one period to the next. It breaks down the movement into specific categories: new business, expansion, contraction, and churn. You can see what's driving growth and where revenue is leaking.
ARR bridges are a must-have reporting tool for finance teams at SaaS and subscription companies. You can tell the full revenue story and see the customer and contract events behind every number. Instead of just seeing that ARR grew by $500K last quarter, you know you added $800K in new business, expanded $300K from current customers, lost $400K to churn, and dropped $200K in downgrades.
This post covers the basic ARR bridge formula, dives into a few arrangements you can build, highlights decisions and pitfalls to watch for, and shows you how to set up an ARR bridge in Runway.
What is an ARR bridge?
An ARR bridge is a simple report. It explains the change in annual recurring revenue between two points in time. You'll see exactly what caused the change, using clear and consistent categories.
The structure looks like this:
Beginning ARR + New business + Expansion − Contraction − Churn = Ending ARR
Each part tracks a clear business event:
- New business is revenue from brand new customers this period.
- Expansion is additional revenue from current customers—think upsells, cross-sells, extra seats.
- Contraction is lost revenue when active customers downgrade or reduce usage.
- Churn is lost revenue from customers who cancel completely.
The bridge turns your ARR growth into a simple diagnostic tool. You’ll see what’s working and what needs work in your go-to-market motion. If churn is climbing, it could signal product or fit issues. If expansion is strong, customers are finding value. If new business is weak, there could be gaps in your pipeline or sales process.
Finance teams use ARR bridges to forecast, prep for the board, and tell the right story to investors. RevOps and sales leadership track performance against targets here. Product teams spot customer retention and product adoption trends. The bridge offers a shared language for every team to discuss revenue health.
ARR bridges also connect directly to net revenue retention, a key SaaS metric. NRR measures how much recurring revenue you retain and grow from your current customers. The bridge components, expansion, contraction, and churn, make up that metric.
Key components and variations
The standard ARR bridge has five building blocks:
- Beginning ARR: Your recurring revenue at the start of the period.
- New business ARR: Revenue from customers who signed up during the period. Purely net-new.
- Expansion ARR: More revenue from existing customers. Includes upsells, cross-sells, seat increases, price bumps.
- Contraction ARR: Lost revenue when customers downgrade but stick around. Seats drop, usage falls.
- Churned ARR: Lost revenue from customers who leave fully.
You can get more detailed to understand your revenue drivers better.
Detailed ARR bridge
Split expansion into subcategories to see what's working best. Instead of one expansion line, break it out:
- Upsells
- Cross-sells
- Seat additions
- Price increases
Organic adoption (customers upgrading because they see value) tells a different story from price-driven expansion. Expansion ARR now makes up 40% of total new ARR for many companies, so seeing this mix is important.
You can also split churn into voluntary and involuntary:
- Voluntary churn: Customers chose to cancel.
- Involuntary churn: Losses from payment failures or expired cards.
Each needs a different response. Voluntary churn can come from product or value gaps. Involuntary churn might need better billing ops.
MRR bridge
Some teams build a monthly recurring revenue bridge. You get faster signals and better granularity. Structure is the same; just use monthly values. Most teams track both: MRR for operational stuff, ARR for planning and investor updates.
Bookings-to-ARR bridge
This version matches up sales bookings to recognized recurring revenue. Sales teams book revenue when contracts are signed, but finance recognizes it when the contract actually starts. This bridge aligns sales and finance metrics and shows time differences.
Cohort-based ARR bridge
A cohort view helps you track revenue movements by customer acquisition period. You’ll see how customers from one quarter behave versus another. This reveals trends in retention and spotlights if changes to sales or onboarding are working.
Important considerations before building
Before you build, make a few key decisions about how you'll assign revenue changes.
Define consistent categorization rules
The big decision is what counts as new business versus expansion. If an existing customer buys a new product, is it expansion or new business? If a customer who left comes back?
Pick clear rules and write them down. Most teams count any revenue from current customers as expansion. Reactivations can go either way. Some count them as new business, some make a separate "reactivation" row. Just stay consistent.
Distinguish voluntary and involuntary churn
Voluntary churn is an active customer decision. Involuntary churn happens from failed payments or billing issues. Solutions are different. Voluntary churn could mean a fit issue. Involuntary churn can be fixed with better billing processes.
Handle reactivations carefully
If a customer comes back after leaving, decide how you’ll track it. Some count them as new business, some use a separate reactivation line, and some subtract it from churn. Choose your approach and be consistent.
Separate true contraction from temporary changes
Not every decrease is true contraction. Usage dips or temporary downgrades can look like contraction. For usage-based pricing, revenue goes up and down with activity. Build a view that smooths these swings, so you see the real pattern.
Handle mid-period changes
Customers upgrade and downgrade at any time. Pick your attribution approach. Most teams assign the change to when it happened, but some spread it out. Document your method for clear reporting.
Adjust for contract timing issues
Multi-year contracts and early renewals introduce timing challenges. A customer might sign a three-year deal, but only the annual value goes into ARR. If they prepay, separate the cash event from ARR. Ramp deals (where prices rise over time) need careful handling to prevent reporting spikes.
Account for usage-based pricing
If your pricing changes with usage, ARR bridges take more care. Revenue can move up and down with customer activity. Some teams look at ARR quarterly or yearly to smooth the numbers. Others report "committed ARR" (excludes usage-based revenue) separately to keep trends clean.
ARR benchmarks and related SaaS metrics
Your ARR bridge ties into core SaaS metrics that stakeholders care about.
Net new ARR
Net new ARR is new business plus expansion less contraction and churn. It’s your recurring revenue change for the period. High-growth SaaS companies often shoot for 50-100%+ net new ARR growth each year, though median growth rates dropped to 26% in 2025.
Net dollar retention
Net dollar retention (NDR) tracks the percentage of recurring revenue you keep and grow from current customers. The formula:
(Starting ARR + Expansion − Contraction − Churn) / Starting ARR × 100
This is your ARR bridge, just shown as a percentage. Median NDR in SaaS is 101% for 2025, down from 105% in 2021. Top-performing companies hit 120% NDR or higher. Expansion more than covers churn and contraction.
Gross dollar retention
Gross dollar retention (GDR) shows how much revenue you keep without including expansion. Calculate starting ARR minus contraction and churn, divided by starting ARR. Median GDR is 91% industry-wide. Enterprise teams often hit 90-95% logo retention. SMBs typically land at 70-80%.
Expansion rate
Expansion rate shows expansion ARR as a percent of starting ARR. Healthy expansion lands at 20-40% of gross new ARR for mature firms. Bigger companies shift the mix toward expansion. Companies over $50M ARR see expansion pass 50% of total new ARR.
Churn rate
Churn rate comes from churned ARR divided by starting ARR. Ideally, it stays below 10-15% each year. Higher churn rates mean it’s time to dig into product or customer fit.
Revenue predictability and forecasting
A consistent ARR bridge helps you forecast better. You’ll understand what drives every number, so you can model future scenarios with real control.
- New business depends on pipeline and sales conversion.
- Expansion tracks with product adoption and customer success.
- Churn lines up with health scores and renewal rates.
Breaking these out lets you forecast each driver on its own.
Common pitfalls and how to avoid them
Teams run into a few predictable issues when building ARR bridges. Here’s how to sidestep them.
Inconsistent categorization
Don’t change how you label revenue movements between periods. If you call reactivation new business one month, don’t call it expansion the next. Write your rules and stick to them. It’s the best way to keep trends real and trackable.
Confusing gross and net churn
Always call out which churn number you’re reporting. Gross churn is total lost revenue. Net churn subtracts expansion. Teams and leaders interpret these differently.
Ignoring bookings-to-ARR timing
Sales logs a booking when a contract is signed. Finance logs ARR when it goes live. If you don’t track the timing gap, numbers get out of sync. Use a bookings-to-ARR bridge to show this clearly.
Treating all expansion equally
Upsells, cross-sells, and price increases all move the needle, but they mean different things for the business. Break out price-driven expansion from adoption-driven growth. The former is one-time, the latter can snowball.
Ignoring contracted vs. live ARR
Some customers sign contracts but don’t go live for months. Count contracted ARR as the signed value, but separate out live ARR for active customers only. Otherwise you might see phantom churn if implementations shift.
Multi-year contract distortions
Multi-year deals, especially prepaid, skew period comparisons. Big spikes in new business may be followed by flat stretches, even if customers are still active. Only count the annual value in ARR, and adjust your bridge as needed.
Ignoring seasonality
Sales cycles and renewals cluster in some businesses. Track rolling 12-month trends or seasonal patterns so you’re not thrown off by a busy or slow month.
Comparing across companies
Every company’s contract structure and revenue policies are different. Don’t compare ARR bridges across businesses unless you know contract lengths and recognition rules are similar.
Ignoring currency fluctuations
For global teams, exchange rate changes can make flat moneys look like growth or contraction. Track ARR at constant currency rates to show the real movement.
Not separating organic from M&A
If you buy another company, split out organic ARR movements from those added through acquisition. Stakeholders value organic and acquired growth differently.
Failing to reconcile with GAAP revenue
Your ARR bridge should link back to GAAP revenue. ARR is signed and active contract value. GAAP revenue follows recognition rules. Track the timing difference, especially on long contracts or usage-based pricing. Build a process to tie ARR moves to books.
Double-counting revenue movements
If a customer upgrades and extends a contract at once, be careful your model doesn’t log the same dollars twice. Each dollar should show up in only one bridge category.
Misattributing contraction as churn
When a customer just downgrades a tier or drops a seat, track this as contraction, not churn. They’re still active. Your retention strategies should match.
How to build an ARR bridge in Runway
Runway gives you the tools to build, track, and share an ARR bridge that fits your business. Here’s how to set it up.
Step 1: Connect your revenue data
Connect your revenue system to Runway. Use the integrations directory to pull data from Stripe, HubSpot, Salesforce, or your billing tool. You want a table with one row per subscription or customer, ARR or MRR tracked over time, plus a customer ID to track changes.
Step 2: Calculate ARR from MRR
If you’ve got monthly data, add an “Is Active” flag to spot live contracts each month. Multiply MRR by 12 and the flag to get each subscription’s ARR. You now have your ARR base. For more, check out our guide to calculating ARR in Runway.
Step 3: Classify revenue movements
Add a column or field for each ARR bridge component:
- New ARR:
if(ARR.last_month == 0 AND ARR > 0, ARR, 0) - Expansion ARR:
if(ARR > ARR.last_month AND ARR.last_month != 0, ARR - ARR.last_month, 0) - Contraction ARR:
if(ARR < ARR.last_month AND ARR != 0, ARR - ARR.last_month, 0) - Churned ARR:
if(ARR == 0 AND ARR.last_month != 0, ARR.last_month, 0)
These spot each customer’s movement period to period, and bucket it for reporting.
Step 4: Define starting ARR
Add another field for "Prior Existing ARR:"
if(ARR.last_month > 0, ARR.last_month, 0)
This number is your retention metric denominator.
Step 5: Aggregate into model-level drivers
Sum up these numbers across all customers. Use these totals as your company-level bridge:
Starting_ARR: sum of all Prior Existing ARRNew_ARR: sum of all New ARRExpansion_ARR: sum of all Expansion ARRContraction_ARR: sum of all Contraction ARRChurned_ARR: sum of all Churned ARR
Step 6: Calculate ending ARR and retention metrics
Set up a simple formula for Ending ARR:
Starting_ARR + New_ARR + Expansion_ARR + Contraction_ARR - Churned_ARR
Then your Net Dollar Retention metric:
(Starting_ARR + Expansion_ARR + Contraction_ARR - Churned_ARR) / Starting_ARR
This gives your NRR percentage each period.
Step 7: Add dimensions for deeper analysis
Tag each row with dimensions like customer segment, product line, or region. Now you can slice the bridge by segment and spot where growth and churn land. You might see that enterprise expansions are strong, or SMBs are churning faster, or different product lines run at different paces.
Step 8: Set up forecasting logic
Once you’ve got your history, add forecasts for each bridge component. Forecast new business from sales pipeline data. Forecast expansion using customer success and product usage. Forecast churn based on health scores or patterns. With scenarios, you see how each shift impacts your ARR path.
Step 9: Visualize and share
Drop your ARR bridge into a driver table or waterfall chart to show trends. Build a dashboard to track bridge components against targets. Use collaboration features to share the bridge, add team notes, and log changes over time.
Step 10: Reconcile with revenue recognition
If you’ve got multi-year deals or complex revenue rules, build a revenue recognition model in Runway. This spreads value across the deal’s term and matches your ARR bridge to GAAP revenue. You can explain both side by side, so everyone’s on the same page.
Track revenue movements
An ARR bridge turns one big number into a detailed story. You can see customer behaviour, product impact, and business health at a glance. You’ll know exactly where to double down and where to focus next.
Building an accurate ARR bridge means clear categorisation, careful handling of edge cases, and tying back to your books. Once it’s running, the ARR bridge becomes your key tool for forecasting, board meetings, and big decisions.
Runway’s flexible modeling platform makes ARR bridges easy and powerful. Connect your data, bucket movements automatically, pull reports by any dimension, and visualize trends without endless spreadsheets or manual checks.
Ready to turn your revenue change into action? Get started with Runway and bring modern financial modeling to your revenue game.