> ## Documentation Index
> Fetch the complete documentation index at: https://docs.fincelo.app/llms.txt
> Use this file to discover all available pages before exploring further.

# ARR Waterfall

> How Fincelo tracks ARR movements — new, expansion, contraction, churn, and reactivation.

## Overview

Fincelo maintains a real-time ARR waterfall — every movement in and out of ARR is tracked to its source with full audit trail. The waterfall feeds the CFO Morning Brief, NRR calculation, and churn predictions.

***

## ARR Waterfall Components

| Movement            | Definition                                | Trigger                                    |
| ------------------- | ----------------------------------------- | ------------------------------------------ |
| **New ARR**         | ARR from first-time customers             | New contract activated                     |
| **Expansion ARR**   | ARR increase from existing customers      | Seat addition, tier upgrade, usage upgrade |
| **Contraction ARR** | ARR decrease from existing customers      | Seat reduction, downgrade (not full churn) |
| **Churned ARR**     | ARR lost from full terminations           | Contract terminated                        |
| **Reactivated ARR** | ARR from previously churned customers     | Customer returns                           |
| **Renewed ARR**     | ARR from contracts renewing at same value | Renewal at same terms                      |

***

## ARR vs Revenue — Critical Distinction

ARR and revenue are tracked independently in Fincelo:

* **ARR decrements** on the actual termination date — always
* **Revenue recognition** depends on CFO view selection:
  * **View A (no refund)** — revenue recognised through original end date
  * **View B (refund issued)** — revenue stops at termination, credit note raised

The AI suggests the correct view based on contract language. The CFO always decides. The decision is logged.

***

## NRR Calculation

```
NRR = (Opening ARR + Expansion - Contraction - Churn) ÷ Opening ARR × 100
```

Fincelo calculates NRR at:

* Customer level
* Cohort level (by acquisition month)
* Plan/tier level
* Overall workspace level

***

## Contraction vs Churn

These are separate waterfall buckets:

* **Churn** = full termination (customer leaves entirely)
* **Contraction** = partial reduction (customer reduces seats/tier but stays)

Mixing these distorts NRR. Fincelo enforces the distinction automatically.

***

## ARR Anomaly Detection

The Revenue Anomaly Agent monitors:

* Unexpected ARR movements above statistical threshold (Z-score > 2)
* ARR that doesn't match invoiced amounts
* Expansion signals from usage data
* Customers approaching usage limits (tier-based alerts)

Alerts appear in the CFO Morning Brief and trigger CSM Hub notifications.