The Changing Role of the Demand Waterfall: A Conversation with Terry Flaherty

Terry Flaherty is a Research Director at SiriusDecisions, a B2B marketing veteran, and a respected expert on Demand Generation (or Demand Creation, as SiriusDecisions prefers to call it.) He’s also the acknowledged godfather of the SiriusDecisions Demand Waterfall®, which makes him the person to blame every time your manager asks you about MQL conversion rates. I talked to Terry recently about the changing role of the Demand Waterfall in an era when many pundits and martech vendors are attempting to redefine the rules by which Demand Generation works.

(HS) Tell us how the demand waterfall came to be.

Terry Flaherty(TF) Companies strive for better alignment between marketing and sales. A key element of that alignment is a standard set of terms and definitions to describe key stages in the lead management process. Without a common language and understanding of this shared process, marketing and sales can’t communicate clearly. Any measurement of the process will likely yield different results. The SiriusDecisions Demand Waterfall was designed to provide this common shared language between marketing and sales to define a standardized lead management process.

(HS) Why is it important for B2B companies to know their waterfall model and the conversion metrics between different stages?

(TF) Sharing a common model allows marketing and sales to focus on key operational metrics such as conversion rates, velocity and volume. All three of these metrics work together to define lead management performance. Conversion rates measure efficiency of the engine. Velocity identifies the time to move across stages, and volume measures the number of leads at each stage. Understanding efficiency of the process is important because it directly impacts required volumes and budget. An inefficient lead management process requires more volume (and budget) at the top of the waterfall to reach a revenue goal. But in most organizations, budget is a constraining factor, so maximizing the efficiency of the engine by measuring and improving conversion is critical.

(HS) What can the waterfall tell us and help us improve?

(TF) The waterfall helps us understand the efficiency of our lead management process. That gives us a data point as to how we’re currently doing in this process. We can take that data and create trend analysis to answer the question of trends and improvement. We can compare last quarter to the previous quarter and see if our efficiency is improving or declining.

But that analysis is only part of the story. One of the advantages of adopting the SiriusDecisions Demand Waterfall is the ability to compare your lead management process performance against peers with the same process stages and definitions. That comparison of actual performance against peers provides great context to identify areas in the lead management process (the sub-processes) where we are under-performing. Looking at the performance across the sub-processes provides insight into waterfall performance patterns (i.e. above benchmarks in some areas and below benchmarks in others in the process). These patterns can then help pinpoint the cause of the under-performance.

For example, if we’re significantly above benchmark in the automation qualification sub-process converting INQ to AQL), and then significantly below benchmark in telequalification (converting AQL to TQL) then it’s likely we’re flooding the telequalification team with unqualified leads prematurely, and we may want to focus on refining our lead scoring models.

(HS) Redefining the lead funnel seems to be an industry unto itself these days, much of it in the service of selling marketing technology. Every so-called thought leader has a different idea of what the funnel should look like. Should people pay attention to these different models?

(TF) There are 2 key questions to consider when looking at a model:

– Does the model accurately represent my lead management process?
– Does marketing, sales and teleservices agree on the model?

Models differ based on the level of granularity they provide at some of the key sub-processes in the lead management process, and in most cases are complementary to the demand waterfall. A very common situation where the waterfall aligns with another model is the integration of the waterfall with the more detailed sales process. Depending on the sales methodology, it may include seven, eight or more stages in the process of qualifying and closing a deal. The SAL, SQL and Closed/Won Waterfall stages align to waterfall stages. The same is true for more detailed models in teleservices looking at touch attempts, conversations, call quality and other factors. So yes, pay attention if they provide additional insight and can align with your overall process.

(HS) Is the original, classic demand waterfall still valid? If it changes, is that because we understand the buying process better, or because selling and marketing have changed?

(TF) It’s absolutely still valid. The waterfall is a modular framework, and you use the stages that represent your current lead management process. When we released the rearchitected waterfall, we added some additional stages to the original waterfall based on the additional insight that marketing automation provided for lead scoring, as well as the increased adoption of the telequalification function. If you don’t have lead scoring and telequalification in your organization, then the waterfall model you deploy looks like the original waterfall. And as your processes evolve, you can add additional stages to your waterfall and benefit from the appropriate benchmarks based on your new process.

(HS) Where does the waterfall go from here?

The biggest change I’m seeing with the waterfall is that it’s evolving from being considered an interesting report to now becoming a critical element of both marketing execution and planning. One major factor driving this evolving role is the increased filtering of waterfall data based on context. Companies don’t measure a single waterfall today. Instead, they are applying filters to measure the lead management process based on contexts for customer type, deal size, market maturity, geography and other key factors. These filters deliver more precise insight about how the lead management process performs in these contexts.

The waterfall is now supporting 4 key use cases for marketing and sales leaders:

Service level management. The waterfall provides the framework needed to define and govern key hand-off points between marketing, teleservices and sales

Waterfall diagnostics. Compares current performance to benchmarks (by context) to understand where and why the lead management process is under-performing

Revenue forecasting. Allows companies to look forward and determine the revenue potential in their current waterfall today, and project when that revenue will occur. Based on that projection, organizations take take action to prevent revenue gaps before it’s too late.

Demand planning. Uses the waterfall conversion data to forecast the total waterfall volume needed to meet revenue goals. Marketing programs and budgets then align to support these waterfall goals.

(HS) Thanks Terry!


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