Waterfall Wisdom: Guide to More Predictable Pipeline Modeling

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- Okay, hi everyone, my name's Maura Rivera.

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I'm the CMO here at Qualified.

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And today I am joined by Nani Schafer,

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CMO at Channel 99, Nani, welcome.

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Thank you so much, excited to be here.

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Excited to have you here.

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So today we're gonna be talking about

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how to really build a predictable pipeline waterfall model

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so that you can kind of plan for quarters in years ahead

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about what pipeline coverage you need.

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But before we dive in, can you tell me a little bit

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about yourself, tell me about what you

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and the team at Channel 99 are doing?

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- Yeah, yeah, of course.

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So I'm CMO at Channel 99.

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And the way I like to think about Channel 99

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and kind of what gets me out of bed in the morning is

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it's sort of the modern approach to attribution.

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So the questions that we had are the concerns

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that I think we've all sort of shared

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around a more traditional approach to attribution.

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We're aiming to sort of get past

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those stumbling blocks that we've seen.

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And so thinking about, for example, your digital channels

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in particular, being able to make sure

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that we're both accurately and precisely allocating

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or understanding where the dollars that you're spending

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on those are winding up in terms of engagement

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and revenue ultimately.

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So yeah, it's an exciting time to be thinking about that

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and it plays really well into sort of the discussion

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we're having today around how to build pipeline

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and how to be predictable in your business.

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- And what a relevant product right now.

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I feel like a big theme of our gathering today

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is how do you prove the ROI of your marketing investment?

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How do you focus on the right things

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from a marketing perspective?

1:28

So channel 99 is really coming in to help solve

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that problem.

1:32

So super excited to see what you guys are doing.

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So Nani, as a CMO, what are some of the biggest challenges

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when it comes to setting pipeline targets

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and predicting pipeline?

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I think we've all been in the room before, myself included,

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where we write a huge number on the wall and say,

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this is what we're gonna go after this quarter.

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What are some of the challenges as a CMO

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when you're kind of building out this framework?

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- Yeah, I mean, there are a couple of things

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that come to mind.

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One is a little bit on the boring side,

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which is just having the right data.

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So understanding precisely how much pipeline

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you have generated in the past is really critical

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for understanding how much you're gonna be able

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to generate in the future.

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And that seems like a really simple thing on the surface,

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but you'd be surprised at how often different departments

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within a given organization will have different answers

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to that question.

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And so being really clear around pure definitions,

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what is pipeline?

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How do we define pipeline?

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How do we break up our pipeline into different segments?

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What does it mean to be an enterprise pipeline opportunity

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versus a mid-market one versus SMB, new business upsell?

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So all of these sort of, again, kind of boring,

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but really foundational definitions are important.

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And the other challenge I would say comes up

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just around alignment and communication across teams.

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So again, I think of especially sales, marketing,

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and finances needing to be completely on the same page

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about the goals that we're setting,

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how we arrived at them,

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and how we wanna sort of approach meeting them.

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And if those three parts of the org

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are sort of off in their separate silos,

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you end up with a problem from the start.

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So those two things I think are important is the data

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and the kind of communication,

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and both of those could be bigger challenges

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than you might expect.

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And I think you oftentimes make assumptions.

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Everybody's thinking about pipeline the same way.

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I'm thinking about it.

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Everybody's defining it the same way.

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We are, but it's so important to have that conversation

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and almost have a glossary of term, right?

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And also be willing to maybe adjust it

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as your business changed.

3:34

Exactly.

3:35

And the other thing I would add too is

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you don't want any surprises, right?

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So you never wanna walk into, let alone like a board meeting,

3:42

but even getting up in front of your CEO

3:44

and surprising your head of sales

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with the, here's where we are with pipeline

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and having them not agree with that, right?

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So making sure you're really, really in tune

3:52

and on the same page when it comes to the measurement

3:55

of your own performance.

3:57

So let's get into the meat of it.

3:58

I saw you gave this session a similar kind of talk track

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at the Norwest CMO Summit a few months ago.

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And I immediately left and was like,

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we've got to bring this to the masses.

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Your session was one where every CMO around me

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was taking out their notepads,

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they were taking out their pens,

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they were scratching things down.

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I think a lot of folks having kind of mastered this art

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of how you create a pipeline waterfall model.

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So can you tell me kind of what is a pipeline waterfall model

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and how does your team use this data?

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- Yeah, yeah.

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So just kind of the, at the beginning here

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when we think about what an actual pipeline waterfall is,

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it's a combination of being able to understand

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the pipeline that you're generating

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and what you're expecting to have come out of that

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when it comes to revenue.

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So in a given quarter, let's say,

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you're gonna generate a certain amount of pipeline,

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a certain number of pipeline opportunities,

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and you wanna be able to be really predictable

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about where that's gonna land

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in terms of the closed one revenue

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that's gonna come out of it.

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And it depends on your business

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and it depends on even sub-segments of your business

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for how that's gonna happen.

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So you might, and we'll get into some of the more detail

5:03

on this, but you might expect some small percentage

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of that pipeline to close within a single quarter,

5:09

that same quarter, right?

5:10

But much of it, you're really relying on for future quarters.

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And so that's why it becomes especially critical

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for businesses because the pipeline

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that we're generating for today,

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sure, some of it's gonna close in the short term,

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but it's really our building blocks for the future.

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And so the more predictable we can be about that,

5:27

the better off we are so that we can understand

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whether to panic or not at where we are.

5:33

(laughs)

5:33

And I think sometimes as marketing leaders,

5:35

we think just about the pipeline we need to generate,

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but we're not always spending enough time dissecting

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the coverage that we have

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and how it will kind of curious

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into future quarters.

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Our CRO before I was talked about like there's pipe gen

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and there's pipe when, like when it's gonna hit

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and materialize, and I think that's an important lens

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for everybody to kind of carry through to their planning.

5:55

It's pertinent, exactly.

5:58

You talked at the beginning about like some of the things

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you kind of need to do early and often,

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which is let's make sure we're all speaking the same language,

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we have the same things to find.

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But before you go into building the model,

6:09

you kind of have your six step framework.

6:11

There's some data you need to make sure

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you have your hands on at the beginning.

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So before you even start building this model,

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what information should you pull in?

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- Yeah, yeah, good question.

6:21

There are a couple of important things that you're gonna need.

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One is as much historical data as you can get your hands on,

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which kind of goes without saying,

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and it depends on where you are

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and how old your business is.

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Typically, if you've got about four quarters of data,

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you're in a pretty good place, right?

6:36

Most pipeline is gonna resolve itself within a year

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for true enterprise business.

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That can be different.

6:44

It can be, we know that deals can take years,

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but for the most part when you're talking about businesses,

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you can get enough of a sort of cycle

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and understanding where pipeline is gonna go

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if you've got solid four plus quarters.

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So historical data is really important.

6:58

And making sure that you're being,

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this is where it's unsexy, but really important

7:03

is that your Salesforce data is clean, right?

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Or your CRM data is clean.

7:08

And so looking at the deals that you're closing

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and how much they're bringing in in terms of bookings,

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understanding your close rates.

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And we'll talk about kind of how we define close rates

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'cause that's another really important term

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that we talk about a lot.

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And lots of people have lots of different definitions for us.

7:25

We'll talk about what that means in a little bit,

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but having a sort of standardized way

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of looking at that over time,

7:30

and then building out and looking at your new targets,

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what's coming up in the future.

7:35

And typically, that's gonna start

7:37

with your finance team, right?

7:38

Some all in number that says,

7:40

we need to bring in this number of dollars

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in this quarter and the following quarter and the following quarter.

7:45

Now, how do we figure out how to get there?

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And that's really the ultimate goal of our discussion today is,

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okay, given we know we need to hit this number of dollars,

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how much pipeline do we need to generate today

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based on what we already have

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and what we expect to build in the future.

7:57

- Okay.

7:58

And what, when are you usually thinking about building this?

8:00

So here we are, it's April.

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We're all kind of in the throes of our fiscal year.

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You know, we're in Q1.

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We're just starting Q2.

8:08

Is this an exercise you usually do in the fall?

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As you plan for the next fiscal,

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is this something you're constantly pressure testing?

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Like, how do you think about kind of the cadence

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and timing of this exercise?

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- Really, any and all of the above.

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So I would say typically the formal, you know,

8:24

pipeline goal setting for the year

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starts in the sort of September timeframe,

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depending on your fiscal, right?

8:30

In the fall, a quarter before you start your new fiscal.

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That's typically when finance is starting

8:35

to get a better idea of what we want

8:36

in terms of our revenue and booking schools

8:38

for the following year.

8:40

That being said, it's incredibly important

8:43

that these waterfalls and the outcome of them,

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the sort of output in terms of pipeline goals.

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That's something you're gonna look at every day,

8:49

every week, right?

8:51

And then you're also gonna be, as you say,

8:53

pressure testing these as each quarter closes,

8:56

typically is another good timeframe

8:58

where you wanna review and say,

8:59

okay, these are the assumptions we put into the model.

9:02

Are we seeing those same assumptions

9:03

hold true in real life?

9:05

And if not, how do we adjust?

9:07

So it's really a kind of all the time exercise,

9:11

but like I say, it's sort of an annual planning thing

9:13

and then a quarterly checkup and then weekly daily

9:16

where you're basically looking at your own performance

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against goals.

9:20

- Yeah, it's living, breathing, just like all work things.

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- All work things are.

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- Exactly.

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- And so what are, as you kind of say,

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you get this set up, you know, it's Q1,

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you're keeping an eye on the data,

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what are some of those things you should look out for

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that like to kind of traps or gotchas

9:34

that might show you that like you might need

9:36

to adjust some things?

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- Yeah, yeah.

9:38

I mean, I think, a, if you're way off, right?

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And if you're as, you know, as we get into sort of building

9:46

out the model itself, one of the first thing that's,

9:49

it sounds again so silly, but that's important to do

9:51

is a sort of sniff test.

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So if in a given quarter, let's say it's Q3

9:56

and you as a team had needed to generate 250 opportunities

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and suddenly your, your model is spitting out something

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that says you need to generate 4,800, right?

10:06

There's no way you're gonna do that,

10:07

absent, a miracle, right?

10:09

So making sure that the model that you're building

10:11

is giving you a reasonable set of expectations,

10:14

kind of an important thing to be thinking about.

10:17

But other things that can factor in happen

10:19

all the time in businesses, right?

10:21

You launch a new product, you reorganize your sales team,

10:25

you focus on a different area in the market, right?

10:27

All of those can have an impact

10:29

on what you're expecting in terms of the input of the model.

10:32

And I keep saying like the inputs to the model,

10:34

there's really at least three things

10:36

that are gonna impact the number of pipeline opportunities

10:38

you need to generate.

10:39

One is the close rate, we talked about one is the deal

10:42

velocity and one is the deal size, right?

10:44

Those are the only things that, that really factor

10:47

into how much pipeline you're gonna need to generate.

10:49

So anything that might impact any of those three

10:51

might change, might warrant readjusting your model.

10:55

- Okay, great.

10:56

Well, let's dive into it.

10:57

You kind of have the six step framework.

10:58

So, why don't you show it to us?

11:00

- Yeah, yeah.

11:01

So, and apologies in advance,

11:02

'cause this is, we're gonna get into some actual numbers

11:04

and really make this as practical as we can.

11:07

But I thought it would be useful

11:08

to kind of look at real life examples.

11:11

So the first step is just looking at

11:13

what has been closed one by each pipeline cohort.

11:17

So if you're looking at the chart here,

11:20

across the left side, you're gonna see each quarter.

11:24

And the number of pipeline opportunities

11:25

that have been generated within that given quarter.

11:28

Across the top, you see those same quarters,

11:30

but now we're looking at closed one deals, right?

11:32

So if, for example, you see 125 pipeline opportunities

11:36

generated in Q1, we see that 16 of those of that cohort

11:41

closed in that same quarter.

11:42

And then we see nine closed, the following quarter,

11:44

six, three, one, right?

11:45

So it's taken about five quarters to, let's call it,

11:48

resolve those pipeline opportunities.

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So you can kind of kind of sense of over time,

11:55

the velocity of these different pipeline opportunity

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and the pipeline cohort that you're looking at.

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So that's the sort of level set.

12:01

This is all historical data that we talked about beforehand,

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right?

12:05

So you can access this hopefully any time.

12:07

And this is just sort of the basis

12:09

for the inputs of the model.

12:11

So from there, you're gonna enter in

12:14

your goals going forward, right?

12:16

So in terms of the total bookings that you need to generate,

12:20

and then dividing by the average deal size

12:22

that you've got how many actual opportunities

12:25

need to be closed one, right?

12:26

So you can see along the bottom here,

12:28

for example, in this upcoming Q1, right?

12:30

Maybe I need to close 36 opportunities.

12:33

That's the idea is I need to hit 36 opportunities

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and how am I gonna get there?

12:37

So now we move on to the sort of third step,

12:40

which is, well, what is this like velocity

12:43

that we're talking about here?

12:45

What can I expect for any of these different cohorts?

12:47

So instead of looking at hard numbers,

12:49

I simply swap it over to percentages.

12:50

So back to that Q1 example, right?

12:53

Of the 125, 13% closed in one quarter,

12:56

7% closed in two quarters, 5%, 2%, 1%.

13:00

You can see this sort of declining as we like

13:03

finish up that particular cohort.

13:06

And that helps us because as you look down

13:08

sort of diagonally in that waterfall,

13:11

you start to get a sense of this average,

13:13

we'll call it average one quarter close rate,

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average two quarter close rate.

13:16

So on average, right?

13:18

Well, I don't know what the average is,

13:19

but you can see 13%, 9%, 8%, 9%, right?

13:22

Somewhere in that range is what we might expect

13:24

to see in any cohort's first quarter out the gate.

13:28

And that enables us then to build out

13:31

what we might expect in the future

13:33

if we literally generated no more pipeline, right?

13:35

So out of only the pipeline that we've generated

13:37

in the past to date,

13:39

what's still left to ring out, right?

13:41

'Cause we generated pipeline yesterday, right?

13:44

Hopefully we had a good day.

13:46

And so what is that?

13:47

What might be expected in the future

13:49

if we did nothing else, right?

13:50

So you can see again, for example,

13:52

if we closed out Q4,

13:55

we had 184 pipeline opportunities

13:57

that we generated, 16 of them closed in that first quarter.

14:01

Hey, this upcoming quarter,

14:02

we're expecting 10-ish more deals

14:04

to come just from that cohort, right?

14:06

And from two quarters ago,

14:07

we're gonna get another six deals.

14:09

So you can kind of see,

14:10

even with doing nothing for my upcoming quarter,

14:13

I'm gonna get 18, 19 opportunities

14:16

that will be closed wide.

14:18

So now we just have to fill it down.

14:19

So right, so we talk 18, 19,

14:21

we need to get to 36.

14:22

How do we do that?

14:23

We add 17.4 in this case,

14:26

which we know is impossible,

14:27

but we're talking about average here.

14:29

So I need to generate 17 more opportunities

14:33

in order to fill that delta

14:34

from the pipeline I'm gonna generate this very quarter,

14:37

'cause that's all I have left.

14:38

I've already incorporated in all the expectation

14:41

for previous pipeline.

14:43

So given that,

14:45

how much pipeline do I need to generate this quarter?

14:48

So we go back to that sort of input,

14:50

the expectation that around, let's call it 8%

14:53

of my pipeline generated in a given quarter

14:55

is gonna close that same quarter.

14:58

And I wind up with figuring out

14:59

I need in this case,

15:00

217 opportunities in order to close 17 of them,

15:05

this particular quarter, and close that gap.

15:08

So that's sort of like the ultimate answer

15:10

to the question that we had.

15:11

How much pipeline do we need to generate?

15:12

And you just fill in the rest of the model from there.

15:16

And that, in a nutshell, in the quick few minutes,

15:19

is kind of how you generate that waterfall model.

15:21

When you look at sources, right,

15:23

we all are not immune to the sales versus marketing debate

15:27

or tension.

15:29

How do you think,

15:30

do you ever factor that into this model?

15:32

Is that two in the weeds?

15:33

And does that get too messy?

15:35

Like how do you kind of think about

15:37

dividing and conquering?

15:38

Who's doing what?

15:38

Yeah, so it's a great question.

15:40

I am of a mind that dividing up a sort of funnel

15:44

or a pipeline number between sales and marketing

15:46

is a useless waste of time.

15:48

My general practice is that marketing should take

15:53

on the full number,

15:55

knowing that of course we're not generating,

15:58

from the beginning all of these,

15:59

but to be honest, we're probably at least touching

16:02

nearly all of them, right?

16:04

It's a rare opportunity that's gonna close

16:06

with no one coming to your website ever,

16:07

like poor research on their end.

16:09

So what I prefer to do is say marketing and sales, right?

16:13

And particularly sort of like the SDR function often, right?

16:15

We're gonna take on the same pipeline number together

16:18

so that we're all looking at the same numbers

16:22

and approaching the same goal.

16:23

And neither one of us can ever reach the goal

16:25

without the other one reaching the goal.

16:27

Then on top of that,

16:28

we might layer in additional information about,

16:31

okay, it was helpful for us to understand

16:33

that some portion of this was influenced by a webinar

16:37

or was influenced by an event that we went to

16:39

or a dinner that we hosted or whatever it might be.

16:42

But I don't like to sort of say,

16:43

"Ah, I'm gonna appeal this apart"

16:45

and pretend that there is a world in which marketing

16:48

was the only reason that a pipeline opportunity was generated

16:51

or sales was the only reason a pipeline

16:53

opportunity was generated.

16:54

It's just too complicated in the B and B world to do that.

16:59

So when you are breaking down,

17:00

that isn't to say you're not gonna have multiple waterfalls,

17:03

but it's gonna be mid-market enterprise

17:05

or new business upsell.

17:06

It's not gonna be, I wouldn't recommend marketing sales.

17:10

I mean, in today's world, you have to work together.

17:13

You have to go towards one target

17:14

or else it's bigger pointy chaos.

17:16

All the way, it's clear chaos.

17:18

And hopefully all of those channels

17:19

are working in concert.

17:20

They're seeing an advertisement.

17:21

They're coming to it as badly.

17:22

We outbound to them, we warm them up,

17:24

like that everybody's working--

17:26

Exactly.

17:27

Exactly.

17:28

So this waterfall model that you just built,

17:31

how do you kind of put it into practice?

17:33

How do you break it beyond, you know,

17:34

it's great that we have this spreadsheet

17:36

and we have a source of truth and we have all the numbers,

17:38

but how do you find yourself leveraging it

17:40

throughout your organization?

17:41

Yeah, yeah.

17:42

It's a great question.

17:44

Honestly, one of my very favorite ways of leveraging it

17:46

is in a weekly meeting that actually was started

17:51

at my own company, demand-based,

17:52

lots of companies do this,

17:53

but we called it our funnel working group

17:55

where the sales, marketing and operations,

17:57

leadership teams would come together every week

17:59

and review these numbers and you would sink.

18:01

Okay, we could just update the dashboard.

18:05

Like we can all refresh that together,

18:06

but it was such a healthy conversation

18:08

to get that group of people in the room

18:10

to start with pipeline as our basis,

18:12

to say how are we performing in a granular way,

18:15

this week against our goal?

18:17

And if we're ahead of target, what do we attribute that to?

18:20

And if we're behind our target,

18:22

what do we attribute that to and how do we fix that?

18:24

And it enabled us to, again,

18:26

importantly stay in alignment,

18:28

but also to sort of approach things as a team together

18:31

and never let anything suddenly get way out of hand.

18:34

You don't want to end up at the end of the quarter

18:35

and be like, what happened?

18:36

We completely whiffed, right?

18:38

It has to be something more frequent than that.

18:40

So that's just one example, lots of different ways,

18:42

but I think some way of keeping it sort of alive

18:44

and in focus all the time.

18:45

The funnel working group,

18:46

I haven't heard that, we call it our pipeline council,

18:48

but that's a great name too.

18:49

So week over week, how are we trending?

18:51

What are our gap plans?

18:52

How are we gonna hit it?

18:53

It's coming into market from sales and marketing.

18:55

And it's a really good alignment exercise

18:58

and so important.

18:59

And even if people are just to fly on the wall

19:01

to kind of wrap their heads around the data,

19:03

it's critical.

19:05

So thank you, Nani.

19:06

This was so fun.

19:07

And I'm super excited because we're making this model

19:10

that you built available to everybody.

19:11

So we have a guide where everybody can really get

19:14

the waterfall wisdom that Nani just dropped on us

19:17

and we also are gonna have kind of a blank template

19:20

that you can use to plug in your own numbers

19:22

and adjust it and use it to apply to your own business.

19:25

I think every CMO could benefit from this

19:28

and also RevOps leaders, demand gen leaders.

19:31

So thank you for imparting your waterfall wisdom.

19:34

Anytime.

19:35

- Honestly, still that. - Thanks for having me.