Why We Have A New Waterfall For 2021 (And Why You Should Care)
At Forrester, we are frequently asked to provide benchmark conversion rates for leads. The most common conversion-rate questions we hear are, “What should our conversion rate from visitor to form fill be?” “What should our form fill to marketing qualified lead be?” From marketing qualified lead to sales-ready lead, from sales ready to pipeline, and from pipeline to closed won?
When the question comes with no further qualifications, the only reasonable answer is, “It depends.” Because it does depend on a wide variety of factors, ranging from the cost of the solution to the kind of companies you’re selling to the part of the world in which you are selling to the degree to which the solution addresses a known business problem.
Waterfall Defining Factors
There are two factors that are so critical and introduce such a wide disparity of answers that we have fashioned entirely new demand waterfalls around them:
1. Buying groups. Prior to 2017, all of our waterfalls and virtually every waterfall or funnel model in B2B were organized to track leads at the top and opportunities at the bottom. The problem with this arrangement is that when B2B organizations go to market, the buyer they are trying to attract is not a single person for each selling opportunity.
When a real selling opportunity exists, there are generally multiple people who are part of the buying committee who engage and become leads. Buying groups may average five to seven individuals, and organizations can expect that at least two of them will become leads at some point prior to purchase. In typical B2B processes, only one of those leads would make its way onto an opportunity. If opportunities have, on average, just two leads per buying group, that puts a ceiling on lead conversion rates.
Consider this example: Company A is in market for your widget solution. Three members of the buying group for that solution in Company A come to your website and become leads in your system. Per the standard (but wrong and unfortunate) process in B2B, only one of those leads becomes attached to the ultimate sales opportunity that closes.
Is the lead conversion rate in that situation 100% or 33%? For most organizations today, it would look like 33%. If sales closes 25% of the opportunities it puts into pipeline, and marketing has attracted three leads per opportunity, there will have been 12 leads resulting in one sale. That’s a conversion rate of about 8%. But is that right? Marketing really produced four opportunities, one of which closed, so the conversion rate on what marketing produced should really be 25%.
The Demand Unit Waterfall™ was built to account for that and we’ve been beating that drum for four years. When you have multiple ‘leads’ from the same organization and for the same solution, bundle them and treat them as what they are: one selling opportunity. When you do that, what you will likely find is that a key indicator of propensity to close is whether there was one lead for an opportunity, or multiple leads. It’s that important.
2. The opportunity mix. There’s another factor our waterfalls have not yet accounted for, and it may be just as important in determining the overall performance of your organization’s revenue engine. It’s what we call the opportunity mix. For all but the youngest of startups, your revenue goals rely on converting a mix of net new logo acquisition opportunities, existing customer cross-sell and upsell opportunities and, perhaps most importantly, retaining existing customer deals.
There are two crucial elements to the opportunity mix. First, each opportunity type has a distinct set of performance characteristics. Put simply, each opportunity type converts at different rates at each stage, and each can be expected to spend a different amount of time at each stage. Second, because each tends to perform differently, the particular mix of opportunity types that make up your revenue goals will have a massive influence on how the overall revenue engine performs. If you are an organization that gets 70% of its revenue from renewing existing customers, your revenue engine will perform very differently from one where 70% of the revenue is expected to come from new logo deals.
The Forrester B2B Revenue Waterfall was designed from the top down to allow organizations to account for the opportunity mix. It retains all of its buying group centric features, of course. In addition, we’ve made some subtle but important changes to other aspects of the waterfall to help all revenue engine functions feel at home using the waterfall.
Even (okay, especially) if you haven’t yet taken advantage of the Demand Unit Waterfall™, leapfroggers are welcome. Get in touch to learn more about how we can help. For more information on this topic, download our complimentary eBook, “Driving Growth With The B2B Revenue Waterfall™.”