When it comes to data analysis, charts are a business’s best friend. You’ve probably used innumerable charts in your marketing, ranging from bar graphs to pie charts.
The waterfall chart is the type of graph we will discuss today. Waterfall charts are among the most important marketing resources available, so understanding about them will be beneficial!
So, what is a waterfall chart? How do you create them, and what can you learn from them? We’ll address all three of these questions below, so keep reading to find out more.
What are Waterfall Charts?
A waterfall chart is a style of data visualization that shows the cumulative influence of positive and negative values on a starting point. They provide a simple and straightforward way to grasp how many elements contribute to overall value. With their basic layout, these charts allow for rapid study and sharing of complicated data.
Waterfall charts depict the sequential flow of data, with each phase or component represented as a separate bar. The initial value is represented by the starting point, and succeeding bars show additions or subtractions to that value. Each bar is color-coded to show whether the impact is good or negative. The final bar indicates the total value after all steps are taken into consideration.
These charts are very useful for analyzing financial data, managing projects, and evaluating performance. Waterfall charts make it easier to see trends, patterns, and areas for improvement by visually segmenting the data. They also allow for effective comparisons between multiple data sets, making it easier to identify anomalies or outliers.
Waterfall charts improve decision-making processes by providing a quick overview of the contributing factors and their impact on the final outcome. This simple and instructive visualization tool is frequently used by experts from a variety of industries to evaluate and display complex data sets in an easy-to-understand style.
Why use a Waterfall Chart?
When attempting to display data with both gains and losses, utilize a waterfall chart rather than other types of charts. It’s very valuable for determining how a loss affects the subsequent value.
One of the reasons waterfall charts are helpful in marketing is that they provide context for the data being reported. Most data visualizations fail to account for factors that cause a decrease or increase in numbers, such as seasonality.
For example, suppose you make a waterfall chart of your Twitter followers over time. Rather than using a line graph to illustrate your overall number of users over time, a waterfall chart presents how many you lost and how it affected the following figures.
At first look, these charts can be difficult to understand. Let’s look at how to read a waterfall chart.
How to Read a Waterfall Chart
If you’ve never read a waterfall chart before, it may feel strange at first. It’s vital to remember that you’re reading it from left to right.
For example, suppose you’re measuring blog traffic month after month. On the far left, you’ll see the total traffic for the previous year. Then, for the entire year, add the month-by-month gains and losses. At the bottom of the graphic, you can see the overall traffic for the year.
This is what it looks like:
Image source: HubSpot
Take note of how each value ends or begins where the preceding value left off. The number of visitors increased by 5,000 in January but decreased by 2,000 in February and March. That is accounted for in April’s traffic value, which begins at -2,000 and gradually increases.
A waterfall chart is designed to show you where you started and where you ended up, as well as the steps you took to get there. In this example, you can see which months received the highest traffic against which months lost traffic. This may help you identify seasonal changes while keeping the overall picture in mind.
Applications of Waterfall Charts
Waterfall Charts are particularly useful in various domains, including:
- Financial reporting: This is the process of breaking down changes that contribute to a company’s income, profit, or expenses over time.
- Budget Analysis: Examining the disparities between budgeted and actual numbers.
- Project management involves tracking project expenditures and detecting particular additions and deductions during the project’s lifecycle.
- Sales and marketing: Assessing the effectiveness of various sales channels or the influence of marketing efforts on sales data.
Benefits of Using Waterfall Charts
- Clarify Financial Stories: They convert complex financial data into an intelligible narrative by demonstrating how initial values are altered owing to a variety of factors.
- Visual influence: The step-by-step portrayal allows stakeholders to better understand the flow of values and the influence of specific components.
- In-depth Analysis: Provide a more in-depth analysis of business activities and financial results by isolating the effects of various variables.
- Decision Support: They give a visual foundation for strategic decisions by emphasizing the primary drivers of financial results.
How to Create a Waterfall Excel Template
Gather Your Data before creating a waterfall chart, compile the data you need. This could be tracking blog traffic or leads generated from a marketing campaign.
- Create a Data Table
- Excel or Google Sheets, create a table with four columns:
- Leave the first two columns without headings.
- In cells A2 to A15, enter: START, the 12 months (Jan, Feb, etc.), and END.
- Enter Your Data
- Manually input your data into the table, making sure to distinguish between positive and negative values.
- Sum Your Values
- Add all the values together, including negatives, and place the total in cell B15, next to END.
- Highlight Your Data
- Select the entire table you created.
- Insert the Waterfall Chart
- In Google Sheets: Go to Insert > Chart > Waterfall chart.
- Ensure “Waterfall Chart” is selected under Chart Type in the Chart Editor.
- If using Excel, select Insert > [Waterfall chart symbol] > Waterfall. Your chart will be automatically generated based on the values in our template.
Final Thought
A great technique for showing data that experiences both gains and losses is a waterfall chart. These charts make complex data analysis easier to understand by offering an organized and transparent perspective of the various aspects that influence the end result and contribute to the beginning point.
Waterfall charts provide an easy way to display and analyze sequential data, whether you’re monitoring blog traffic, financial performance, or project expenses.
You may easily design your own waterfall charts with Google Sheets or Excel by following the instructions in this guide. This will improve your capacity to share insights and make well-informed judgments.
