The demand for data center solutions with lower total cost of ownership and lower complexity of management is driving the creation of next generation datacenters. The information technology industry is in the midst of a transformation to lower the cost of operation through consolidation and better utilization of critical data center resources. Successful consolidation necessitates increasing utilization of capital intensive "always-on" data center infrastructure, reduction in the recurring cost of power and management of physical resources like water. A 1MW data center operating with water-cooled chillers and cooling towers can consume 18,000 gallons per day to dissipate heat generated by IT equipment. However, this water demand can be mitigated by appropriate use of air-cooled chillers or free cooling strategies that rely on local weather patterns. Water demand can also fluctuate with seasons and vary across geographies. Water efficiency, like energy efficiency is a key metric to evaluate sustainability of IT ecosystem. In this paper, we propose a procedure for calculation of water efficiency of a datacenter while providing guidance for a management system that can optimize IT performance while managing the tradeoffs between water and energy efficiency in conventional datacenters.