Waterfall Wisdom: Guide to More Predictable Pipeline Modeling

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Okay, hi everyone, my name's Mora 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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I'm 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

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is it's sort of the modern approach to attribution.

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So the questions that we had or the concerns

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that I think we've all sort of shared around

0:45

a more traditional approach to attribution

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were aiming to sort of get past those stumbling blocks

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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.

1:20

I feel like a big theme of our gathering today is

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how do you prove the ROI of your marketing investment?

1:26

How do you focus on the right things

1:27

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.

1:35

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

1:39

when it comes to setting pipeline targets

1:42

and predicting pipeline?

1:43

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

1:45

myself included, where we write a huge number on the wall

1:48

and say, this is what we're gonna go after this quarter.

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What are some of the challenges as a CMO

1:53

when you're kind of building out this framework?

1:55

Yeah, I mean, there are a couple of things 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

2:07

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

2:18

within a given organization will have different answers

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to that question.

2:22

And so being really clear around pure definitions,

2:26

what is pipeline?

2:27

How do we define pipeline?

2:29

How do we break up our pipeline into different segments?

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What does it mean to be an enterprise pipeline opportunity

2:35

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

2:38

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

2:42

but really foundational definitions are important.

2:47

And the other challenge I would say comes up just around

2:50

like alignment and communication across teams.

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So again, I think of especially sales, marketing,

2:56

and finances needing to be completely on the same page

3:00

about the goals that we're setting, how we arrived at them,

3:03

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,

3:10

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.

3:22

Everybody's thinking about pipeline the same way.

3:23

I'm thinking about it.

3:24

Everybody's defining it the same way.

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

3:29

and almost have a glossary of term, right?

3:31

And also be willing to maybe adjust it

3:33

as your business changed.

3:34

Exactly.

3:35

And the other thing I would add too is

3:37

you don't want any surprises, right?

3:39

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

3:46

with the, here's where we are with pipeline

3:48

and having them not agree with that, right?

3:50

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

4:01

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 gotta bring this to the masses.

4:08

Your session was one where every CMO around me

4:10

was taking out their notepads,

4:11

they were taking out their pens,

4:13

they were scratching things down.

4:14

I think a lot of folks having kind of mastered

4:17

this art 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?

4:27

- Yeah, yeah.

4:28

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

4:35

the pipeline that you're generating

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

4:39

when it comes to revenue.

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So in a given quarter, let's say,

4:44

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

4:52

in terms of the closed one revenue

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that's gonna come out of it.

4:54

And it depends on your business,

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and it depends on even sub-segments of your business

4:58

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

5:06

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.

5:14

And so that's why it becomes especially critical

5:16

for businesses, because the pipeline

5:18

that we're generating for today,

5:20

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

5:22

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

5:25

And so the more predictable we can be about that,

5:27

the better off we are, so that we can understand

5:29

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,

5:38

but we're not always spending enough time dissecting

5:41

the coverage that we have,

5:42

and how it will kind of curious

5:43

into future quarters.

5:45

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

5:47

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

5:49

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

5:53

for everybody to kind of carry through to their planning.

5:56

It's pertinent, exactly.

5:58

You talked at the beginning about like some of the things

6:00

you kind of need to do early and often,

6:03

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

6:05

we have the same things to find.

6:07

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

6:13

you have your hands on at the beginning.

6:14

So before you even start building this model,

6:17

what information should you pull in?

6:19

- Yeah, yeah, good question.

6:21

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

6:23

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

6:27

which kind of goes without saying,

6:29

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

6:39

for true enterprise business.

6:43

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,

6:49

you can get enough of a sort of cycle

6:51

and understanding where pipeline is gonna go

6:53

if you've got solid four plus quarters.

6:55

So historical data is really important.

6:58

And making sure that you're being,

6:59

this is where it's unsexy, but really important

7:03

is that your Salesforce data is clean, right?

7:06

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,

7:13

understanding your close rates.

7:15

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

7:17

'cause that's another really important term

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that we talk about a lot.

7:23

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

7:25

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

7:26

but having a sort of standardized way

7:29

of looking at that over time.

7:30

And then building out and looking at your new targets,

7:34

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 that in this number of dollars

7:42

in this quarter and the following quarter

7:43

in the following quarter.

7:45

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

7:47

And that's really the ultimate goal

7:48

of our discussion today is, okay, given,

7:51

we know we need to hit the number of dollars.

7:53

How much pipeline do we need to generate today

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based on what we already have

7:56

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.

8:02

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

8:05

You know, we're in Q1.

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And we're just starting Q2.

8:08

Is this an exercise you usually do in the fall?

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Is you plan for the next fiscal?

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Is this something you're constantly pressure testing?

8:15

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.

8:19

So I would say typically the formal, you know,

8:24

pipeline goal setting for the year

8:27

starts in the sort of September timeframe,

8:29

depending on your fiscal, right?

8:30

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

8:33

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

8:44

that these waterfalls and the outcome of them,

8:46

the sort of output in terms of pipeline goals.

8:48

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 hold true

9:04

in real life 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, sort of an annual planning thing

9:13

and then a quarterly checkup and then weekly daily

9:16

where you're basically looking

9:18

at your own performance against goals.

9:20

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

9:22

- All our things are.

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- Exactly.

9:24

- No, what are as you kind of say, you get this set up,

9:27

you know, it's Q1, you're keeping an eye on the data.

9:29

What are some of those things you should look out for

9:32

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?

9:37

- Yeah, yeah.

9:38

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

9:42

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.

9:53

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 model is spitting out something

10:03

that says you need to generate 4800, right?

10:06

There's no way you're gonna do that

10:08

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 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

10:52

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

11:26

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,

11:47

so let's call it resolve those pipeline opportunities.

11:52

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

11:55

the velocity of these different pipeline opportunity

11:58

and the pipeline cohort that you're looking at.

12:00

So that's the sort of level set.

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This is all historical data that we talked about beforehand,

12:04

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

12:13

in 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?

12:31

Maybe I need to close 36 opportunities.

12:33

That's the ideas I need to hit 36 opportunities

12:36

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

we swap it over to percentages.

12:51

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,

13:15

average two quarter close rate.

13:16

So on average, right, well, I don't know what the average is,

13:19

but you can see, you know, 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

13:38

in the past to date, 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, you know,

13:55

we had 184 pipeline opportunities that we generated,

13:58

16 of them closed in that first quarter.

14:01

Hey, this upcoming quarter, we're expecting 10-ish more

14:04

deals 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, even with doing nothing

14:12

for my upcoming quarter, 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, we need to get 36.

14:22

How do we do that?

14:23

We add 17.4 in this case, which we know is impossible,

14:27

but we're talking about average here.

14:30

So I need to generate 17 more opportunities

14:33

in order to fill that delta from the pipeline

14:36

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, how much pipeline do I need

14:47

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

14:56

is gonna close that same quarter.

14:58

And I wind up with figuring out I need,

14:59

in this case, 217 opportunities

15:03

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 a 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, do you ever factor that into this model?

15:32

Is that two in the weeds and does that get too messy?

15:35

Like how do you kind of think about

15:37

dividing and conquering 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, we might layer

16:29

in additional information about, okay,

16:31

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,

16:44

I'm gonna appeal this apart and pretend

16:46

that there is a world in which marketing

16:49

was the only reason that a pipeline opportunity

16:50

was generated or sales was the only reason

16:52

a pipeline opportunity was generated.

16:55

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

17:02

multiple waterfalls, but it's gonna be

17:04

mid-market enterprise 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

17:15

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.

17:22

- Exactly.

17:23

- We outbound to them, we warm them up,

17:24

like that everybody's working 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,

17:35

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, 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 sync.

18:02

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?

18:21

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, 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?

18:37

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.

18:50

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, 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.