Demand Waterfall
Demand Waterfall is a staged demand-generation model that maps how raw leads progress through qualification into pipeline and closed revenue, with conversion rates measured at each stage.
Also known as: demand generation waterfall, SiriusDecisions waterfall, lead waterfall
Demand Waterfall is a staged model that maps how raw leads progress through qualification into pipeline and closed revenue, with conversion rates measured at each stage. Originally developed by SiriusDecisions (now part of Forrester), it gives sales and marketing a shared model and a shared vocabulary for the demand-generation process. The model has evolved over time to account for inbound and outbound demand types and account-based motions where buying groups, not individual leads, progress through the stages.
What Demand Waterfall Means
A Demand Waterfall is a stage-based representation of the full demand-to-revenue path, with conversion rates measured between each stage. A classic Waterfall runs from inquiries, to marketing-qualified leads (MQLs), to sales-accepted leads (SALs), to sales-qualified leads (SQLs), and finally to closed-won deals. Each stage has a defined entry point and a measured conversion rate, so teams can see where leads are lost, forecast how much top-of-funnel volume is needed to hit a revenue goal, and pinpoint the stage that most limits results. Updated versions, including the current Demand Unit Waterfall, add branches for inbound versus outbound demand and for account-based buying groups.
How Demand Waterfall Works
A Demand Waterfall works by tying conversion rates at each stage to a measurable revenue outcome, so teams can work backward from a revenue target to compute the top-of-funnel volume required. Divide the target by average deal value to get the number of wins needed, then divide by conversion rates at each stage to compute SQLs, MQLs, and inquiries required. The math gives marketing a defensible top-of-funnel goal tied directly to the sales number, not pulled from intuition. The model also enables stage-by-stage diagnostics: when conversion drops at a specific point, the team can focus improvement effort precisely there rather than spreading attention across the whole funnel.
Common Pitfalls and Misconceptions
The model has evolved over time, including versions that account for inbound and outbound demand types and account-based motions where buying groups, not individual leads, progress through the stages. The core value is consistent: a shared, measurable definition of how demand converts into revenue, agreed by sales and marketing rather than imposed by one team on the other. A common mistake is treating the stages as activity counts without agreed entry definitions, so MQLs and SQLs mean different things to different teams. Another is optimizing top-of-funnel volume while ignoring weak conversion further down, which produces more leads without more revenue.
Demand Waterfall in Practice
The practitioner reality is that the Demand Waterfall is only as useful as its stage definitions. Teams that adopt the diagram but skip the hard conversation about what an MQL or SAL actually means end up with metrics that look rigorous but mean different things to different people. Mature programs review their stage definitions annually, validate them against win/loss data, and treat the Waterfall as a living agreement between functions rather than a slide in last year's planning deck. The other discipline is segmenting the Waterfall by source, inbound, outbound, account-based, since blended conversion rates often hide a high-performing channel inside a weak one and obscure the actual improvement opportunities.
Frequently asked questions
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What are the stages of the demand waterfall?
A classic waterfall runs from inquiries, to marketing-qualified leads (MQLs), to sales-accepted leads (SALs), to sales-qualified leads (SQLs), and finally to closed-won deals. Each stage has a clear entry definition and a measured conversion rate to the next. Updated versions add branches for inbound versus outbound demand and for account-based buying groups.
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Who created the demand waterfall?
The demand waterfall was created by SiriusDecisions, a B2B research and advisory firm later acquired by Forrester. It has been revised several times to reflect changes in B2B buying, including the rise of account-based marketing and multiple inbound and outbound demand types. The current version is known as the Demand Unit Waterfall.
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Why is the demand waterfall useful?
It gives sales and marketing a shared, measurable model of how demand converts into revenue. By tracking conversion rates at each stage, teams can identify exactly where leads are lost, calculate how much top-of-funnel volume is needed to hit a revenue target, and focus improvement on the stage that constrains results most.
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What is a common mistake when using the demand waterfall?
A common mistake is treating the stages as activity counts without agreed entry definitions, so MQLs and SQLs mean different things to different teams. Another is optimizing top-of-funnel volume while ignoring weak conversion further down. The model only works when each stage has a clear definition sales and marketing share.
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Is the demand waterfall still relevant with account-based marketing?
Yes, though it needs adaptation. Updated versions add account and buying-group stages alongside the traditional lead path, so teams can measure progress at the account level. The core idea of staged, measured conversion still applies; the unit of measurement shifts from individual leads to accounts and demand units.
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How do you calculate volume needed from the waterfall?
Work backward from the revenue target. Divide by average deal value to get the number of wins needed, then divide by conversion rates at each stage to compute SQLs, MQLs, and inquiries required. The math gives marketing a defensible top-of-funnel goal tied directly to the sales number, not pulled from intuition.
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What is the difference between the demand waterfall and a sales funnel?
A sales funnel typically focuses on opportunities and stages owned by sales after qualification. The demand waterfall extends earlier, capturing marketing-sourced inquiries and the qualification steps before an opportunity exists. The waterfall is a fuller, sales-and-marketing-shared view; the sales funnel is the second half of it.