What is the total cost of an SDR?
I started selling in 1999 before SDRs were a thing.
Then, in 2004 the Salesforce model for a team of outbound Sales Development Reps was born, promoted widely in Aaron Ross’ “Predictable Revenue”
SDRs would use technology to automate and accelerate their ability to prospect at scale - allowing companies to increase the volume of prospecting and free up time for their more costly AEs to focus on converting sales.
The economics of an SDR
Too often I see companies that follow the SDR model blindly, without looking at whether it makes financial sense for their business.
Let’s look at it in detail:
Employee costs
RepVue show the current base and OTE earnings for an SDR
On top of the employee’s salary we have additional costs including benefits and taxes.
Using Remote’s employee cost calculator for the United Kingdom as an example this adds and additional $13,400 per annum (this differs by country due to local legislation).
In the employee cost I have not included office costs, food, or any other office based benefits - according to Bridge Group 54% of SDRs were working fully remote in 2022.
If you have teams in offices then add this to your per head cost.
Tech costs
Now we need to look at the tools we are going to provide that SDR with - CRM, email, sales enablement and engagement software, LinkedIn Sales Navigator, contact lists, call recording and analytics, plus back office tools like HR, Payroll, Single sign on…
According to Vertice’s latest SaaS spending report, this totals $9,000 per annum for sales teams, and we are probably being kind to the model as SDRs often have access to more tools than the AEs do - contact data and outbound engagement tools.
Leadership costs
Leadership comes next - according to Glassdoor a typical US SDR manager makes $126,500.
which if we then apply the additional taxes and benefits and spread across a team of eight gets an annual cost of $18,342 to be added to the SDR cost.
Enablement Costs
Enablement is critical to help SDRs get up and running - they are provided with onboarding, methodologies, continual training and coaching via a separate enablement team.
The cost of this can vary depending on the programmes you run, but let’s assume a cost of $4,000 per SDR per annum which includes your internal enablement team, their benefits and taxes, the cost of your enablement platforms, and any external sales methodologies or training.
Attrition Costs
And finally let’s look at attrition. So far our model assumes every seat is fully productive 100% of the time.
Bridge Group shows us that the average SDR is only fully productive for a median of 16 months.
Productivity is calculated as average tenure (1.4 years) minus average time to ramp (3.2 months).
SDR Productivity. Source: Bridge Group 2023 SDR Metrics Report
If we are kind and assume that it takes two months to fill an empty seat, and then 3.2 months to ramp that SDR, that means across a lifespan of an SDR 24% of that time is not fully productive (empty seat or ramping).
We therefore need to hire more SDRs to get to the same destination, so let’s add an additional 20% of the SDR salary and benefits to cover the recruitment costs and unproductive time - $18,800
The total cost of an SDR
Employee cost: $93,393
Tech cost: $9,000
Manager cost: $18,342
Enablement cost: $4,000
Attrition cost: $18,800
Total cost: $143,535 per annum or $11,961 per month
Cost per lead
Now we’ve looked at what an SDR costs, let’s see what you get for your money.
The Bridge Group report shows that SDRs’ responsibilities range from creating introductory meetings through to fully-qualified opportunities with between 5.8 and 7.8 of their leads converted into opportunities by the AE each month.
Monthly SDR Quotas. Source: Bridge Group SDR Metrics Report
Let’s use 7 leads as our metric.
This gives us a cost per lead of $11,961 / 7 = $1,708 per converted lead created.
Are buyers really new contacts?
This model assumes that the leads that an SDR generates are sole sourced by the SDR.
A new contact, not touched by our other demand generation activities and no involvement from the Account Executive up to the point the lead is passed over to them.
The SDR takes someone with zero knowledge or intent to buy, and turns them into someone with knowledge and a potential intent to buy.
But today, buyers want to self-serve much of their buying process.
They want to speak to peers, use product review platforms, and learn from analysts and third party events.
The point when put their hand up as an inbound request, or when they eventually respond to your SDR’s email or call is often the final step in their education where they now need to speak to your AE to get details on pricing, contracts or technical specifications.
You may have watched Christiano Ronaldo’s ‘phantom’ goal in the 2022 World Cup when he nearly connected with a ball that was already heading into the goal.
What percentage of your SDR generated opportunities are ‘phantom’ SQLs?
The buyer filled in a demo request
The buyer signed up to an event and received a follow up
The buyer was ready and replied to the inbound call
The contact is not a real buyer, but an additional contact in an existing opportunity
The AE provided the SDR with the talk track and contact list
The AE tagged the SDR on an AE generated opp
If half of your SDR opportunities could actually have gone straight to the AE direct, then you now need to double your average cost per ‘real’ lead to $3,417 and add this into your CAC/LTV calculations.
And now we need to remember that leads are not deals - SQLs then need to be turned into real opportunities and converted by your AEs at a typical 4:1 ratio meaning the cost per closed won lead is now $13,669.
Does the SDR model work for your business?
The numbers I have walked through in this post may be different to yours, but they should help you develop your thinking around the economics of your SDR model.
I have built a calculator for you to plug in your own company’s figures.
Access the calculator by clicking on the button below, create a copy so that you can edit your own version.
If you are selling a $15,000 ACV product can you afford to pay $13,700 just for the lead (your full CAC will include a lot more than just that)
SDR teams didn’t exist before 2004, and I can see a world where except in specific scenarios they don’t exist in the future.
My advice to revenue leaders - don’t just build an SDR model because that is what everyone else does.
Map out the economics and make an educated decision on whether it helps your AEs to close more business at a lower cost of acquisition.
Watch my walkthrough
If you found that useful and would like me to walk you through it - watch and share the video below.
Get started
Whenever you are ready, there are two ways that I can help you accelerate your revenue.
Buyer Experience Audit - I’ll impersonate a buyer researching your segment and company and let you know what I find. Ideal for planning your Revenue Operations strategy.
RevOps Impact Playbooks - I’ll help you implement one or more tactical processes across your revenue teams - content, referrals, testimonials, adoption and more.