None of these disadvantages of spreadsheets are new - they’ve been around as long as spreadsheets have existed. Automating data aggregation and working with real-time data are major reasons to avoid spreadsheets for waterfall charts and models. The time it takes to aggregate the financial and operational data necessary to create spreadsheet-based waterfalls makes it almost impossible to keep pace with business demands. But then what? When stakeholders can’t drill down into the numbers or leave comments easily, you’re missing out on opportunities to strengthen your partnerships across the business. Business stakeholders may be able to understand a spreadsheet-based waterfall chart. Any time you’re manually entering formulas and data into a spreadsheet, there’s a chance for typos and errors that compromise the numbers or, worse, break the model altogether. In that case, you’re spending all your time pulling data from source systems, aggregating it into a model, and building out complex formulas instead of discovering the strategic insights that will drive the business forward.īut even if you’re just building out a simple waterfall chart, there’s the potential for issues in a spreadsheet. So, while you might be able to get away with creating ad hoc financial waterfall charts month in and month out when someone is looking for a quick visualization, relying on spreadsheets gets much harder when you’re building complex waterfall models. “But they’re not great as databases and they’re not great as integration tools.” “Spreadsheets are great for analysis, they are great as ad hoc tools,” he said. Sal Abdulla said as much on an episode of The Role Forward. There’s a common refrain among modern finance leaders regarding spreadsheets - that even though spreadsheets are powerful, flexible tools for finance processes, they come with their fair share of headaches. The Problem with Building Waterfall Charts and Models in Excel If the time it takes to build the chart or model leaves you analyzing stale data, the insights will fall flat for the rest of the business. While these benefits make creating waterfall charts and models worth the effort, there is a point of diminishing returns. Different use cases will require different steps and formulas, which you can find in the other chapters of this guide.īut this quick video shows how to think through the process of creating a cohort waterfall model (albeit without the complex steps you go through in spreadsheets): The process to create a waterfall model involves building complex formulas to a financial model to add cohorted data sets. But the cohort waterfall method is the most common - especially for top-line planning use cases. The type of forecast model you build will depend on the use case. For example, the Month 1 row in a sales rep ramp aging waterfall model would show the total of how much all new reps produced in their first month. An aging waterfall displays months down the rows and shows how much all cohorts combined produce in each of those months. Similar in nature to a cohort or spread, but aging waterfalls pivot the data in a slightly different view. 12 months for a 12-month contract), whereas cohort waterfalls continue in perpetuity. A spread waterfall works exactly the same way as a cohort waterfall, with one difference: A spread waterfall only calculates totals for a defined period of time and then stops (i.e. This type of waterfall shows how each monthly cohort performs over time, creating a cascading visual effect across time as you layer in more cohorts down the rows. Present months of the forecast period across the columns and monthly cohorts down the rows. There are three general types of cohort waterfall models that you can build: Example use cases include modeling sales rep ramp, bookings to revenue, bookings to cash, and customer retention. Whereas creating waterfall charts is an exercise in creating visual presentations of data, waterfall modeling is an exercise in generating the forecasts themselves, using complex formulas that predict how different groups and categories will perform over time. Waterfall models are used to build those forward-looking forecasts that are often incorporated into waterfall charts for reporting purposes. The primary difference between a waterfall chart and a waterfall model is that charts are used as a visual reporting tool to present historical performance and/or forward-looking projections from a model. And negative values for churn and downsells result in the ending value of $1.25 million. Positive values for new deals, reactivations, and upsells then increase the total. You can see that the starting point is $1 million in ARR. In the example above, the horizontal axis breaks up into the changes in ARR and the vertical axis displays the cumulative total ARR.
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