Waterfall chart: definition, examples, and best practices.

What is a waterfall chart?

A waterfall chart bridges two numbers. It starts with an opening value, applies a sequence of increases and decreases, and lands on a closing value. Each intermediate bar floats above or below its neighbour rather than sitting on the baseline, which is what creates the stepped, cascading shape. Increases take one color, decreases take another, and opening and closing totals are usually anchored to the axis in a third.

Waterfall charts are also called bridge charts, cascade charts and, in banking, walk charts. They are a staple in consulting and corporate finance because they answer the question that follows every number in a board pack: what changed, and why.

A worked example

This bridge walks three revenue lines down to EBITDA, in USD millions. Subtotal bars anchor total revenue and gross profit, and stacked cost segments show which line drove the shortfall.

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When to use a waterfall chart

• Bridging EBITDA, revenue or margin from one period to the next, broken out by driver
• Explaining budget against actuals, category by category
• Walking from an opening cash balance through inflows and outflows to a closing balance
• Showing the incremental effect of each assumption in a business case or scenario model

When not to use it

• For data that moves continuously over time, use a line chart
• For comparing values across unrelated categories, use a clustered bar chart
• For showing what makes up a single total rather than what changed it, use a stacked bar chart

How to read it

Read left to right. The first and last bars are anchors. Everything between them is a signed contribution that lifts or lowers the running total. Color tells you the direction before you read the label.

Best practices

• Use one color for increases, one for decreases and one for totals, so the chart reads without a legend
• Group the intermediate bars logically. Put all revenue drivers together, then all cost drivers, rather than mixing them
• Label every bar. Waterfalls end up in front of a CFO, and precision matters more than tidiness
• Insert subtotal bars when the bridge runs long, so the narrative has natural breakpoints
• Cap it at eight to twelve bars. Beyond that the bridge becomes hard to follow, so group the small items into an Other bar