What Is a Waterfall Chart in Excel?

A waterfall chart is one of the most effective ways to tell a story with your data, showing exactly how you got from a starting number to a final one. This guide will walk you through what a waterfall chart is, why it's so useful, and how to create one step-by-step in Microsoft Excel.

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What Exactly Is a Waterfall Chart?

A waterfall chart, sometimes called a bridge chart, visualizes the cumulative effect of a series of positive and negative values on an initial starting value. Each value is represented by a "floating" vertical bar, showing how it contributes to the running total. Think of it as a financial statement that you can actually see.

The chart reads from left to right, making it incredibly intuitive to understand:

• Starting Value: The first bar is a full-height column that represents your initial number (e.g., quarterly revenue, starting inventory, project budget).
• Increases and Decreases: Subsequent bars seem to float in mid-air. Columns going up (usually colored green) represent positive contributions, while columns going down (usually colored red) represent negative contributions. Each "floating" bar begins where the previous one ended.
• Ending Value: The final bar is another full-height column showing the result after all the positive and negative changes have been applied.

For example, imagine you're tracking your personal cash flow for a month. A waterfall chart would neatly display your starting bank balance, add your paycheck (a green bar going up), then subtract rent, groceries, and utilities (red bars going down), and finally present your ending bank balance as the last full column. It instantly shows the magnitude of each change and how you ended up where you did.

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When Should You Use a Waterfall Chart?

Waterfall charts are perfect for any scenario where you need to explain the journey from Point A to Point B. They clarify the "why" behind the change in a number, rather than just showing the beginning and end points. Here are a few common business use cases:

Analyzing Financial Statements

This is the classic use case. Instead of just looking at a Profit & Loss (P&L) statement as a list of numbers, a waterfall chart can visualize it:

• Start: Total Revenue
• Decrease: Cost of Goods Sold (COGS)
• Decrease: Sales & Marketing Expenses
• Decrease: R&D Costs
• Decrease: General & Administrative Expenses
• Decrease: Taxes
• End: Net Profit

This immediately shows onlookers which expense category had the biggest impact on eroding the initial revenue, helping focus cost-cutting discussions.

Tracking Inventory Levels

If you run an e-commerce or retail business, a waterfall chart can clearly depict changes in inventory over a period:

• Start: Beginning Inventory
• Increase: New Stock Received
• Decrease: Units Sold
• Decrease: Damaged or Returned Units
• End: Ending Inventory

Sales and Lead Generation Funnels

Marketing and sales teams can use waterfall charts to visualize the movement of leads through a funnel and identify bottlenecks.

• Start: Total website visitors
• Decrease: Bounced visitors (didn't convert)
• Sub-total: Leads Generated
• Decrease: Unqualified leads
• End: Marketing Qualified Leads (MQLs)

Budget vs. Actual Analysis

Waterfall charts are also excellent for showing project budget variance. You can start with the initial budget, then show changes from various expense categories to arrive at the remaining budget.

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How to Create a Waterfall Chart in Excel

Modern versions of Excel (2016 and newer) have a built-in Waterfall chart type, which makes the process much simpler than in the past. Here's a step-by-step guide to building one from scratch.

Step 1: Set Up Your Data

Before you insert any chart, you need to structure your data correctly. You'll need at least two columns: one for textual labels (Categories) and one for numerical values (Values). Remember, decreases should be entered as negative numbers.

For our example, let's create a simple P&L statement for a fictional company.

Your data in Excel should look like this:

• Start and End Totals: "Gross Revenue" is our starting total and "Net Income" is our ending total. These values are absolute numbers, not changes. We calculated Net Income using the formula =SUM(B2:B6) in cell B7.
• Positive and Negative Values: Costs like COGS, Marketing, and Admin are entered as negative numbers because they decrease the total.

Step 2: Insert the Chart

Once your data is ready, creating the basic chart is just a few clicks away.

1. Select your entire data range, including the headers (in our example, A1:B7).
2. Go to the Insert tab on the Ribbon.
3. In the Charts section, click the "Insert Waterfall, Funnel, Stock, Surface, or Radar Chart" icon.
4. Select Waterfall from the dropdown menu.

Excel will insert a chart, but it won't be correct just yet. As you can see below, Excel doesn't know that "Gross Revenue" and "Net Income" are totals, so they are floating like the other bars.

Step 3: Define Your Totals

This is the most critical step. We need to tell Excel which bars are starting and ending points so they anchor to the baseline.

1. First, double-click on the "Gross Revenue" bar in the chart. This selects only that one bar.
2. The Format Data Point pane will open on the right side of your screen.
3. Check the box next to Set as total. You'll immediately see the bar drop down to the baseline and change color.
4. Now, repeat the process for your final bar. Double-click the "Net Income" bar.
5. Go to the Format Data Point pane again and check the Set as total box.

Your chart should now look perfect, accurately representing the flow from revenue to net income.

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Step 4: Customize Your Chart for Readability

Now that the structure is correct, you can add some finishing touches to make it even easier to read.

• Add a Meaningful Title: Click on the chart title placeholder and change it to something descriptive, like "Q3 Profit & Loss Statement."
• Add Data Labels: Right-click on any of the bars and select Add Data Labels. This will display the actual value of each increase or decrease, making it easier to see the magnitude of each change without checking the Y-axis.
• Show Connector Lines: To make the 'flow' even more obvious, you can add lines that connect each bar. Double-click any of the bars to select the whole data series. In the Format Data Series pane, check the box for Show connector lines. This creates thin grey lines that visually link the end of one column to the start of the next.
• Adjust Colors: If your company's branding uses different colors, you can change the default blue, orange, and gray. Just click on a bar, go to the Format tab, and use the Shape Fill options.

Tips for Better Waterfall Charts

Creating the chart is half the battle, ensuring it's effective is the other half. Here are a few best practices:

• Keep Categories Brief: A waterfall chart with 20 tiny little bars becomes hard to read. If you have several small, related expenses (like office supplies, software, and utilities), consider grouping them into a single category like "Overhead Costs" to keep the visual clean.
• Order Logically: The order of your data matters. Arrange your increases and decreases in a sequence that tells a logical story, such as the chronological order of events or the standard flow of a financial statement.
• Be Consistent with Colors: Stick to the standard convention: one color for increases (usually green), one for decreases (usually red), and one for totals (usually blue or gray). This universal understanding helps your audience grasp the chart's meaning instantly.

Final Thoughts

The waterfall chart is a powerful visualization tool in Excel that can transform a dry sequence of numbers into a clear and compelling narrative. By showing the step-by-step journey of your data, you can easily explain performance, analyze financials, and pinpoint key drivers behind changes in your business metrics.

While Excel is great for building these charts with spreadsheet data, the real challenge often comes from gathering and updating that data from all your different platforms. At Graphed, we help automate this process entirely. You can connect sources like your CRM, ad platforms, and sales-tracking software, then use plain English to ask for a visual. Just a simple request like "Show me a waterfall chart of my sales funnel from HubSpot leads this quarter" instantly gets you a live, interactive chart - it does all the data structuring and setup for you.