Every marketing and sales team knows that leads don’t always translate into revenue. Somewhere along the journey from awareness to closed-won deals, opportunities slip through the cracks. And while not every lead is realistically going to turn into a customer, the goal is to create a revenue engine that’s optimized to convert and drive growth. To do that, your organization needs a structured way to measure performance, spot gaps, and create alignment between marketing and sales. That’s where the demand waterfall comes in.
Originally introduced by SiriusDecisions (now part of Forrester), the demand waterfall is a proven framework for mapping, tracking, and optimizing your funnel. It helps you understand not just how many leads you’re generating, but how effectively those leads are progressing through each stage toward revenue.
In this post, we’ll explore what the demand waterfall is, how it works, and how MSPs, VARs, and tech companies can apply it to optimize your funnel.
The demand waterfall is a funnel management model that breaks the buyer’s journey into defined stages, providing both marketing and sales teams with a shared language and set of metrics. Instead of focusing solely on lead volume at the top of the funnel, it emphasizes the importance of conversion rates between stages, giving you insight into the quality of your leads and the effectiveness of your processes.
While there are several variations (the classic waterfall, the rearchitected waterfall, and the demand unit waterfall), they all share the same goal: to provide visibility into how demand flows through your revenue engine.
At its core, the demand waterfall tracks the movement from:
Without a structured funnel model, organizations often measure success based only on how many leads they generate. But volume alone doesn’t drive revenue. Your business may have thousands of leads sitting at the top of the funnel, but if few are converting into sales opportunities, the growth engine stalls.
The demand waterfall provides several key benefits:
Mapping your funnel starts with understanding your unique customer journey and then applying the demand waterfall framework to track progress. Here’s a step-by-step process:
Make sure marketing and sales agree on what each stage means. For example:
Clarity here prevents misalignment later.
The waterfall depends on accurate data. Ensure your CRM and marketing automation systems are properly integrated, and establish rules for lead ownership, deduplication, and status tracking. A platform like HubSpot makes this simple by uniting marketing, sales, and service—including automation—all in one.
Don’t just count how many leads you generate: measure the percentage that advances from one stage to the next. For example, if you generate 1,000 inquiries, how many become MQLs? How many of those become SQLs? How many become customers and beyond that, how many become advocates for your business?
Compare your funnel performance against industry averages or past company data. If your MQL-to-SQL conversion is far below benchmarks, that’s a signal factors like your qualification criteria or sales handoff need adjustment.
Create dashboards and reports that make the waterfall visible to your teams. A clear visualization helps everyone—from executives to frontline sales reps—understand the health of the funnel.
Once you’ve mapped your funnel, the demand waterfall becomes a powerful optimization tool. Here’s how to use it to improve performance:
If you see a sharp drop-off between MQLs and SQLs, investigate why. Is marketing handing off leads that sales doesn’t value? Is sales slow to respond? Are you sharing mismatched messages to your audience? Addressing these issues improves velocity.
Use waterfall data to recalibrate your lead scoring model. For example, if too many MQLs stall, your criteria may be too broad. If few are being generated, it may be too narrow.
The SQL stage is critical. Establish agreements and standard operating procedures (SOPs) that dictate how quickly sales must respond to MQLs and how feedback should flow back to marketing.
Not all funnel stages are equally important. If your top-of-funnel lead generation is strong but conversion to SQL is weak, focus on improving lead quality, nurturing, or sales processes—not just spending more on ads.
Over time, the demand waterfall provides enough historical data to model future outcomes. For example, if you know your MQL-to-SQL conversion rate is 25% and your SQL-to-win rate is 20%, you can calculate how many MQLs you need to hit revenue targets.
The demand waterfall is an effective way to bring marketing and sales together around shared goals and measurable outcomes. By mapping your buyer journey and funnel with precision and using conversion data to optimize performance, you can create a more predictable, efficient, and revenue demand engine.
If your marketing budget is scrutinized (and most are), every dollar and every conversion counts. The demand waterfall helps you see clearly where to invest, where to improve, and how to turn demand into growth.