It’s safe to say that the sales development function is here to stay. Companies, conferences, and careers are being built around the SDR movement. If your average sales price is $100K+, sales development is a no brainer. At $50K, it’s most definitely a yes. But what about $16K? Or $8K? $4K?
There are dozens of threads on Quora about sales development, but none directly answer the question:
What is the minimum ASP where “doing sales development” makes sense?
Even in our Inside Sales AE research and SDR research, we’ve never tackled this specific question. But by combining the two data sets, I think I’ve come up with a pretty good answer. You can follow my math below or skip to the end number here. (Note: I’m not commenting on growth versus profitability. See Mark Suster, David Skok, and Danielle Morrill for that.) I’m trying to answer a more straightforward question. If I spend $250K on sales development, by how much should revenues increase?
To get there, we need to step through four questions.
Question1: Do we know that sales development raises revenues?
In The Sales Development Playbook, Trish Bertuzzi argues:
The value of a sales development effort is measured by increased won business per account executive and/or accelerated new customer acquisition. If you increase lead conversion rates, but you aren’t closing more business, what’s the point? Similarly, if your account executives are having twice as many introductory meetings, but aren’t closing more customers, you’re just spinning your wheels.
As a first step, we need to determine if SDR-supported Accounts Executives (AEs) are indeed more productive than AEs without SDR support. Based on our data, the answer is yes. On average, AEs are made 16% more productive with SDR support.
At lower ASPs, the uplift is more modest. While at the higher end, it exceeds 20%. The net is clear: SDR-supported AEs are more productive. This is a good start. We know that the SDR can be profitable, now we just need to figure out when.
Question 2: How much does one SDR cost?
As a first step, I used our SDR Compensation Calculator to determine on-target earnings. I added in 1/8th of a fully-loaded Manger’s compensation (the average ratio is 1 Manager to 8 SDRs). On top of that, I estimated the spend on enablement technologies, skills trainings, healthcare, taxes, HR, and other benefits.
This gave me a range of $106-$141K for fully loaded SDR compensation. Now we know what one SDR costs. But the vast majority of companies don’t have a 1-to-1 SDR-to-AE ratio. Figuring that out is our next step.
Question 3: What are the SDR-to-Account Executive ratios at different ASPs?
The average ratio is 1 SDR to 2.5 AEs. As sales price rises, SDRs tend to support more AEs as follows:
Question 4: By how much does additional AE productivity exceed SDR cost?
With this is mind, we are able to calculate the fully loaded cost of one AEs share of an SDR. If we take average productivity of an SDR-supported AE and subtract the average productivity of an unsupported AE, we have the gross revenue return. Next, if we subtract the fully loaded cost of one AEs share of an SDR, we have the net return. Here’s where this takes us:
To this point, I’ve been using the average productivity gain from sales development support. Obviously, there is a ton of variation here. I re-ran the numbers at 85%, 100%, and 115% productivity to illustrate the range.
NET NET: What’s the minimum ASP where sales development makes sense?
Our ranges (85%, 100%, and 115% productivity gain) intersect the no return line between $4K-$11K average sales price.
All things being equal:
- An above average SDR team will have a positive return if ASP is higher than $4K
- An average SDR team will have a positive return if ASP is higher than $8K
- A below average SDR team will have a positive return if ASP is higher than $11K
I don’t want to dissuade anyone from building sales development. The lesson to be learned here is that the difference between positive/negative ROI at lower ASPs is how effectively you execute.
I’d love to hear how you’re measuring SDR return. Please let me know what you’ve seen in the comments.