Waterfall Charts: How to Create and Read Them (2026 Guide)

A waterfall chart shows how an initial value is affected by a series of positive and negative changes. Each bar starts where the previous one ended, creating a "bridge" that visually explains how you got from point A to point B. They are essential for financial analysis, budget reviews, and any scenario where you need to explain incremental changes.

What Is a Waterfall Chart?

A waterfall chart (also called a bridge chart, flying bricks chart, or cascade chart) visualizes the cumulative effect of sequential positive and negative values on a starting value. The first bar shows the starting point, intermediate bars show increases (going up) and decreases (going down), and the final bar shows the ending total.

The bars appear to "float" because each one starts from the endpoint of the previous bar rather than from the baseline. Color coding distinguishes increases (typically green or blue) from decreases (typically red), with total bars shown in a neutral color like gray.

How to Read a Waterfall Chart

Reading a waterfall chart follows a left-to-right flow. Start with the first bar, which represents your baseline value. Each subsequent bar shows a change: bars going up represent increases, bars going down represent decreases. The connecting lines between bars show the cumulative running total. The final bar shows the end result.

For example, a quarterly revenue waterfall might show: Q1 Revenue ($1M) + New Customers ($300K) + Upsells ($150K) - Churn ($200K) - Refunds ($50K) = Q2 Revenue ($1.2M). Each component is visible, making it clear what drove the change.

When to Use Waterfall Charts

Revenue bridges. Show how revenue changed from one period to another, broken down by component (new business, expansion, contraction, churn). This is the most common use case in SaaS.

Profit and loss analysis. Start with gross revenue, subtract COGS to show gross profit, subtract each operating expense category, and arrive at net income. Each step is visible.

Budget variance. Compare planned vs actual spending by showing where you went over budget and where you came in under.

Inventory analysis. Start with opening inventory, add receipts, subtract sales and write-offs, arrive at closing inventory.

Cash flow. Show how opening cash balance changes through operating activities, investing activities, and financing activities to reach the closing balance.

Waterfall Chart Examples

Revenue Bridge Example

P&L Waterfall Example

Start with total revenue, subtract cost of goods sold to get gross profit, then subtract operating expenses (salaries, marketing, infrastructure, G&A) to arrive at EBITDA. Each deduction is clearly visible.

How to Create a Waterfall Chart

In Excel: Select your data range with categories and values. Go to Insert > Chart > Waterfall. Excel automatically identifies increases, decreases, and totals. Right-click any bar to set it as a "total" (which resets to the baseline).

In Google Sheets: Waterfall charts are available under Insert > Chart > Waterfall. The setup is similar to Excel.

In Tableau: Use the Gantt Bar mark type with a running sum calculation. Alternatively, use the built-in waterfall chart template in newer versions.

With AI analytics: In Skopx, ask "show me a revenue bridge from Q1 to Q2" or "create a waterfall chart of our P&L" and the AI generates it automatically from your connected data. No manual chart building required.

Design Best Practices

Use consistent colors: green for increases, red for decreases, gray for totals. Label each bar with its value. Include connecting lines between bars so the flow is clear. Start and end with total bars. Keep the number of intermediate steps between 5 and 12 for readability.

Avoid: 3D effects, too many categories (over 15 makes it unreadable), missing labels, inconsistent color coding, or mixing percentage changes with absolute values.

Frequently Asked Questions

What is a waterfall chart used for?

Waterfall charts explain how a value changes through a series of positive and negative contributions. They are most commonly used for revenue bridges (showing how revenue changed between periods), P&L statements, budget variance analysis, and inventory tracking.

What is the difference between a waterfall chart and a bar chart?

A bar chart compares independent categories where each bar starts from zero. A waterfall chart shows sequential changes where each bar starts from where the previous one ended. Waterfall charts reveal the cumulative effect of changes, while bar charts compare separate values.

How do I create a waterfall chart in Excel?

Select your data with categories and values, go to Insert > Chart > Waterfall. Excel automatically color-codes increases and decreases. Right-click the first and last bars to set them as "Total" so they start from the baseline.

Can AI create waterfall charts automatically?

Yes. Platforms like Skopx generate waterfall charts from natural language requests. Ask "create a revenue bridge from January to March" and the AI queries your data, calculates the components, and builds the chart.

How many steps should a waterfall chart have?

Between 5 and 12 intermediate steps is ideal. Fewer than 5 may not provide enough detail to be useful. More than 12 becomes visually cluttered and hard to read. If you have more than 12 components, group smaller items into an "Other" category.