A waterfall chart starts with a total value on the left, shows a series of floating bars that add or subtract from that total, and ends with a final value on the right. You read it left to right, tracking how each bar moves the running total up or down until you reach the end result. Once you understand this basic flow, these charts become one of the easiest ways to see exactly what drove a change between two numbers.
The Three Parts of Every Waterfall Chart
Waterfall charts (sometimes called bridge charts) have a simple structure built from three types of columns. The starting total sits on the far left, anchored to the baseline like a normal bar chart. A series of floating columns fills the middle, each one representing an addition or subtraction from the running total. A second total column on the far right shows the cumulative result of everything in between.
The floating columns in the middle are what make waterfall charts distinctive. Positive values create bars that rise upward from where the previous bar ended. Negative values create bars that drop downward. Most charts use color to distinguish the two: green or blue for gains, red or orange for losses, and gray for the totals. The key insight is that each floating bar picks up exactly where the last one left off, creating a visual chain from start to finish.
Some waterfall charts also include subtotals at intermediate points. These are columns that drop all the way back down to the baseline, just like the start and end totals. They let you see a “checkpoint” value partway through the sequence, which is especially useful in longer charts with many steps.
How to Read One Step by Step
Start at the far left column. Note its value. This is your baseline, the number everything else builds on. In a financial chart, this might be last quarter’s revenue or the beginning-of-year profit figure.
Move one column to the right. If the bar floats above the top of the starting column, it represents a positive contribution. The height of that bar tells you the size of the increase. If the bar hangs below the top of the starting column, it represents a decrease, and its height shows you how much was lost. Mentally add or subtract that amount from the running total before moving to the next column.
Continue reading each floating bar the same way, always tracking the running total. When you reach the final column on the far right, its height should match the cumulative effect of every addition and subtraction in the middle. If the starting value was 100, the middle bars added 30 and subtracted 10, the ending total should be 120.
One thing that trips people up: some bars are meant to be read from the bottom up (gains) and others from the top down (losses). Pay attention to which direction each bar extends from its starting point. The label or data value printed on the bar will confirm whether you’re looking at a positive or negative change.
Why Comparing Bar Sizes Is Harder Than It Looks
Waterfall charts ask you to compare the lengths of bars that are floating at different heights. Humans are naturally good at comparing lengths when bars share a common baseline, like in a standard bar chart. In a waterfall chart, very few bars share one. This means your eye can easily misjudge which change was larger when two bars sit at very different vertical positions.
The practical takeaway: use waterfall charts to understand the direction and rough magnitude of each contribution, and rely on the printed data labels for precise comparisons. If a chart doesn’t include numeric labels on each bar, treat any close comparisons with caution. You’re better off reading the numbers than eyeballing relative bar heights.
Where You’ll See Waterfall Charts
Finance teams use waterfall charts more than anyone else. The most common version is a revenue bridge, which shows a starting revenue figure, then breaks out the specific drivers (new customers, upsells, renewals) and drags (lost customers, contract downgrades) that explain how you arrived at the ending revenue. In the SaaS world, these are often called ARR bridge charts, where ARR stands for annual recurring revenue.
A typical ARR bridge might include these columns from left to right: starting ARR, new bookings, renewals, upsells, churned revenue (negative), downgrades (negative), and ending ARR. Each column isolates one driver so stakeholders can immediately see what’s growing the business and what’s shrinking it.
Another common application is the EBITDA bridge, which shows how a company’s operating profit changed between two periods. It accounts for shifts in revenue, gross profit, and expenses across departments like sales, marketing, and R&D. This type of bridge helps analysts understand whether profit changes came from the top line or from cost control.
Outside of finance, waterfall charts appear in project management (tracking budget consumption), inventory analysis (showing how stock levels changed), and any situation where you need to explain how a number went from Point A to Point B through a series of discrete steps.
Reading a Waterfall Chart With Color Vision Differences
Because waterfall charts rely heavily on color to distinguish positive from negative bars, they can be difficult to interpret if you have color vision differences. Red-green color blindness is the most common type, and it directly affects the most popular color scheme for these charts.
If you’re building a waterfall chart for others, use patterns or textures alongside color, and always include numeric labels with a plus or minus sign. If you’re reading one and can’t distinguish the colors, look for data labels that indicate positive or negative values, or check whether each bar extends upward or downward from the previous bar’s endpoint. The direction of the bar always tells you the sign, regardless of color.
Waterfall Charts vs. Similar-Looking Charts
Stock charts sometimes look like waterfall charts because they also show bars floating in space. But stock charts display open, high, low, and close values for a single security on a given day. They have more in common with box-and-whisker plots than with waterfall charts. The critical difference is that waterfall bars are additive: each one builds on the previous total. Stock chart bars are independent data points that don’t sum to anything.
Stacked bar charts can also cover similar ground, showing how components contribute to a total. But stacked bars always share a common baseline and show composition at a single point in time. Waterfall charts show change over a sequence of steps. If the question is “what makes up this total?” use a stacked bar. If the question is “how did we get from this total to that total?” use a waterfall.