Metrics & Performance
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Quick Answer
A waterfall that decomposes the change in revenue between two periods into named components that sum exactly to the difference.1
A revenue bridge decomposes the change in revenue between two periods into additive, named components that reconcile the opening figure to the closing figure, usually drawn as a waterfall chart. For subscription businesses the components are new customer revenue, expansion, contraction and churn; for unit businesses they are volume, price, mix, currency and acquisitions. For public registrants a prose version is required rather than optional: Item 303 of Regulation S-K directs a registrant whose income statement shows material period-to-period changes in net sales or revenue to describe the extent to which those changes are attributable to changes in prices, to changes in volume, or to the introduction of new products or services.1,2
In Practice
Hypothetical figures. A company opens the year with 8,400,000 dollars of annual recurring revenue. Add 4,100,000 dollars of new customer ARR to reach 12,500,000; add 1,450,000 dollars of expansion to reach 13,950,000; subtract 380,000 dollars of contraction to reach 13,570,000; subtract 1,270,000 dollars of churn to close at 12,300,000 dollars. Net new ARR is 3,900,000 dollars, or 46.4 percent growth. Gross revenue retention is 8,400,000 less 380,000 less 1,270,000, or 6,750,000 over 8,400,000, which is 80.4 percent. Net revenue retention is 8,200,000 over 8,400,000, or 97.6 percent. New logos of 4,100,000 dollars exceed the entire 3,900,000 dollar net gain, so the existing base shrank.
What good looks like
Why It Matters
A growth rate is a single number that hides two different businesses: the one that wins customers and the one that keeps them. The bridge separates them, and the separation changes decisions about where to spend. It is also the fastest diligence instrument available on a revenue line, because gross and net retention fall straight out of the same components, and a company that will not produce a bridge that ties is telling you something. For public registrants, Item 303 of Regulation S-K already requires the price, volume and new product attribution in the discussion of results.1
A revenue bridge is a decomposition of the change in revenue between two periods into named, additive components that sum exactly to the difference. It is drawn as a waterfall: a starting bar, one bar per driver, and an ending bar. Its purpose is to answer why revenue moved, in a form where every claimed reason carries a number.
Three uses, in ascending order of how much anyone cares.
The annual recurring revenue bridge. Used for subscription businesses. The components are opening recurring revenue, new customer revenue, expansion within existing customers, contraction from downgrades, and churn from customers lost. Definitions vary company by company and they are disclosed rather than standardized. Backblaze, for instance, states in its annual report on Form 10-K for the year ended December 31, 2024 that its net revenue retention rate includes any expansion of revenue from existing customers, is net of revenue contraction and customer attrition, and excludes revenue from new customers in the current period, while its gross customer retention rate reflects only customer losses and does not reflect the expansion or contraction of revenue from existing customers. Those two sentences describe precisely the cut a bridge makes.
The price, volume, mix and currency bridge. Used for businesses that sell units. The components are volume, price, product or customer mix, foreign exchange translation, and the effect of acquisitions or divestitures.
The decomposition is not a presentation habit; for public registrants a version of it is required. Item 303 of Regulation S-K directs that if the statement of comprehensive income presents material changes from period to period in net sales or revenue, the registrant must describe the extent to which such changes are attributable to changes in prices, to changes in the volume or amount of goods or services being sold, or to the introduction of new products or services. The same item requires a description of any unusual or infrequent events or transactions or significant economic changes that materially affected reported income from continuing operations, indicating in each case the extent to which income was so affected, and of any known trends or uncertainties reasonably likely to have a material effect on net sales or revenues.
Read together, that is a mandate to bridge, in prose, with the contribution of each factor identified. A registrant that writes "revenue increased due to strong demand" has not met it.
Figures are hypothetical. A company opens the year with 8,400,000 dollars of annual recurring revenue.
Net new ARR is 12,300,000 minus 8,400,000, or 3,900,000 dollars, a growth rate of 3,900,000 divided by 8,400,000, or 46.4 percent.
Now read the same numbers three other ways, which is the whole point of building the bridge.
Gross revenue retention takes the opening base and removes only the losses: 8,400,000 minus 380,000 minus 1,270,000 equals 6,750,000 dollars, which is 6,750,000 divided by 8,400,000, or 80.4 percent.
Net revenue retention adds expansion back: 8,400,000 plus 1,450,000 minus 380,000 minus 1,270,000 equals 8,200,000 dollars, which is 8,200,000 divided by 8,400,000, or 97.6 percent.
Dependence on new logos: new customer ARR of 4,100,000 dollars against net new ARR of 3,900,000 dollars. New business is more than the entire net gain, meaning the existing base shrank in absolute terms even before expansion is counted.
The headline is 46 percent growth. The bridge says something much less comfortable: the base leaks about a fifth of itself every year, expansion almost but not quite covers the leak, and all the growth is being purchased at the top of the funnel. Two companies can both report 46 percent and be in entirely different conditions, and only the bridge distinguishes them.
Figures are hypothetical. A hardware business reports 50,000,000 dollars of revenue in the prior year and 56,400,000 dollars in the current year, an increase of 6,400,000 dollars.
Total growth is 6,400,000 divided by 50,000,000, or 12.8 percent. Constant currency growth is 6,400,000 plus 300,000, or 6,700,000 dollars, divided by 50,000,000, or 13.4 percent. Price contributed 3,200,000 divided by 6,400,000, or 50 percent of the increase, which is the sentence a reader will remember, because price-led growth has a ceiling that volume-led growth does not.
Annual recurring revenue is the measure most bridges are built on, and the bridge is the only honest way to present a change in it. Net revenue retention and gross revenue retention are two ratios computed directly from the bridge's own components, which is why a company that publishes both but no bridge has given you the answers without the arithmetic. A three-statement model consumes the bridge, because each component becomes its own forecast line rather than a single blended growth rate.
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A revenue bridge decomposes the change in revenue between two periods into additive, named components that reconcile the opening figure to the closing figure, usually drawn as a waterfall chart.
Understanding Revenue Bridge is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Revenue Bridge falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
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