What CMOs Need to Know About the Demand Unit Waterfall™

Implementing the Demand Unit Waterfall changes how marketing’s alignment with sales and marketing’s contribution to the revenue engine are managed and measured

CMOs often present marketing’s contribution to the organization’s pipeline in an extreme close-up perspective that distorts the view of the pipeline. SiriusDecisions’ new Demand Unit Waterfall enables CMOs to present a clearer picture of demand creation and paves the way for better recognition of marketing’s contributions to the revenue engine. In this issue of SiriusPerspectives, we examine four key benefits of the Demand Unit Waterfall for B2B CMOs.

One: Aligning on Outcomes

The Demand Unit Waterfall introduces the concept of measuring and managing units of demand instead of individual inquiries. A demand unit is composed of individuals within a single organization with various roles and a common business need driving them to make a purchase decision together. For example, the demand unit within an organization looking to purchase a marketing automation platform typically includes the vice president of demand creation, the director of digital marketing, the marketing operations manager, and representatives from IT and procurement.

• How it works. Management of previous versions of the Demand Waterfall® is based on inquiries measured at the individual level. However, sales performance is measured at the opportunity, or deal, level. For example, if marketing connects with five people in one buying group that makes a purchase and records five inquiries, marketing’s performance is recorded as 20 percent (one closed/won opportunity from five inquiries). However, that scenario contained only one unit of demand, and marketing’s ability to connect with all members of the buying group was excellent. In the Demand Unit Waterfall, when one unit of demand is converted to one sale, marketing’s performance is 100 percent.
• Why it’s important. With the Demand Unit Waterfall, CMOs can now express demand creation performance in a way that matches how sales expresses performance, because the unit of measurement is equivalent (demand units are similar to opportunities, and both can be referred to as potential deals). The chief sales officer and other members of the C-suite can more easily understand marketing’s contribution to closed deals without needing to translate individual inquiries to won opportunities. In addition, tremendous efficiency can be gained when marketing provides sales with one unit of demand that needs to be pursued instead of multiple disconnected individuals, all of whom require followup.

Two: Aligning Sales and Marketing on Target Market(s)

The Demand Unit Waterfall adds two new stages: target demand and active demand. Target demand is the total potential, expressed in demand units, of the market that is being targeted. Active demand is the number of demand units that are in a purchase process. Not all potential buyers are active in a purchase cycle at once, and new technology makes it possible to identify purchase intent and market to potential buyers without having explicit contact information.

• How it works. In many organizations, product management, sales or finance already quantifies the potential revenue, potential customers and/or potential product units from target markets. Marketing should work with other functions to understand the total number of demand units in a target market. In some cases, it may be as simple as determining that the number of demand units equals the number of accounts (e.g. each of 10,000 electronics distributors is a potential customer for an organization’s solution). In many cases, however, each target organization is a prospect for several solutions, so the number of demand units far exceeds the total number of target organizations.
• Why it’s important. The new stages of the Demand Unit Waterfall allow CMOs to align with sales and other functions much earlier in the process – starting with an explicit agreement between sales and marketing on the definition of target and active markets. On the basis of this definition, CMOs can set expectations and add important metrics to their expression of marketing contribution. For example, CMOs may commit to identifying contacts and building the contact database for some percentage (or all) of target demand. CMOs may put new technology in place to identify active demand and measure the percentage of target demand that is active each year to contribute insight to annual planning. CMOs also can measure the number of demand units they are engaged with. All of these measures are important as part of the narrative of marketing’s contribution, and can yield insights to inform the future marketing mix. For example, if active demand units never seek an organization’s solution, this may indicate a weak brand, poor targeting or content that is not easily findable.

Three: Quantifying Targets at a More Actionable Level

Demand maps, which SiriusDecisions introduced with the Demand Unit Waterfall, express the number of potential demand units for a solution and/or an account.

• How it works. Organizations construct demand maps to understand the target market at a more actionable level. Demand maps include new-logo opportunities as well as cross-sell and upsell opportunities with existing customers for each solution. For example, an organization may sell three different solutions and target large enterprises. An existing customer organization may have already purchased one solution, but other departments within that organization could buy the same solution – or one or both of the other two solutions.
• Why it’s important. Planning the opportunity within large accounts (i.e. a demand map at the account level) or across a target market is another point of alignment between sales and marketing and enables additional metrics that quantify marketing contribution (e.g. cross-sell leads). Understanding the makeup of demand units also informs the types of programs marketing should invest in. Programs for new customer acquisition need a set of tactics that is different from tactics within programs that encourage customers to upgrade.

Four: Decoupling Demand Progression from the Org Chart for Efficient Resource Use

Previous versions of the Demand Waterfall express a lead’s stages in terms of the organizational function responsible for the work (e.g. marketing qualified leads, teleprospecting generated leads, sales accepted leads). With the Demand Unit Waterfall, while all demand progresses in the same way – from target demand to active demand to engaged to prioritized to qualified demand – the responsible function is not always the same. For example, with account-based marketing, sales may be the first to engage active demand due to its relationship with the account. In a more transactional situation, marketing may transfer prioritized or qualified demand to a channel partner to close.

• How it works. Rather than prescribe which organizational function (e.g. marketing, teleprospecting, sales, channel) must be responsible for each stage of demand progression, the Demand Unit Waterfall allows organizations to determine which function should be primarily responsible for each stage. Hand-offs between marketing, teleprospecting, sales and channel remain as important as ever, and appropriate service-level agreements must be in place and enforced.
• Why it’s important. The decoupling of prescribed functional owners from Demand Waterfall stages recognizes that sales and marketing can both play an important part in each stage of demand progression, thus improving interlock and aligning the focus on the buying process. Crucially for CMOs, the new Demand Unit Waterfall does not give the impression that once a lead is handed to sales, marketing no longer contributes to its progression. Marketing should be a critical partner all the way to closed business – using tactics such as analyst reports, customer reference programs, pipeline acceleration programs and closing events.

The Sirius Decision

The tighter and earlier alignment with sales facilitated by the Demand Unit Waterfall spurs recognition that sales and marketing work together to create revenue. Understanding marketing’s contribution to each stage of demand progression within different buying scenarios is important, but fighting over which function gets credit wastes energy and sets up an “us vs. them” dynamic. Instead, that energy should go into determining the most efficient path to revenue, combining marketing, sales, teleprospecting and channel resources. Measurement in the Demand Unit Waterfall aligns more directly with the way sales (and the rest of the business) views opportunities, and presents new metrics that can be used to correlate marketing activity, efficiency and revenue. CMOs should direct their demand creation and marketing operations teams to evaluate how Demand Unit Waterfall implementation can benefit the marketing function as well as the organization as a whole.