As someone who’s built or helped build multiple Sales Development teams, I wanted to pass along the formula that I use to roughly estimate whether an SDR team will be a good investment for a company.
If you’re coming into this from outside of the SaaS world, SDR stands for Sales Development Representative. They’re also sometimes called ISRs, BDRs, ADRs, MDRs, and all other sorts of nonsense. An SDR is an inside salesperson focused solely on prospecting and setting up opportunities for an Account Executive to close business.
Simple Way to Measure ROI
Achieving Return on Investment means you’re getting back the cost of your investment, and then some. For now, we’re going to leave out calculating the NPV/LTV, and just focus on cash we get from the SDR’s first year.
To do this, we’ll use the following formula:
Total Annual Contract Value from SDR / Total Associated SDR Costs
Loaded Costs per SDR
Remember, the total costs associated with an SDR are more than their annual OTE. Bake in payroll taxes, allocated Salesforce/Lead gen/healthcare costs, plus management overhead of 10–15%. So first, here’s an example of what an SDR’s fully-loaded annual cost would look like:
- Total Compensation: $65,000
- Payroll Taxes (10% of comp): $6,500
- Healthcare/Salesforce/Nova/Slack/Gmail/Food/Coffee: $750
- Management overhead (15% of comp): $9,750
- Total associated costs per SDR: $82,000
Revenue Productivity Funnel
Now, we know what an SDR costs, but now we need to figure out how much revenue we can expect per SDR!
An decent quota of meetings per month per SDR would be somewhere in the 18/mo range in order to earn an OTE of $65k/yr; let’s assume 60% of those meetings turn into Opportunities, and 30% of those Opportunities turn into customers, who on average pay $15,000/yr.
With those numbers, here’s our Meetings conversion funnel, per year:
216 Meetings > 130 Opportunities > 39 Deals
At $15k per customer of ACV, that’s $585k of ACV each SDR is generating in their first year.
Great! So now we roughly know their ROI: 585k ACV / 82k Cost = 7.1x ROI. Not bad at all.
Is this definitive? What does that number mean?
First, put in your company’s own funnel metrics into my formulas above. If you can already get more than 7.1x ROI (or whatever your personal result was) from your existing demand generation initiatives, then hold off on building that SDR team.
Most companies in this deal size range see 2–5x ROI on demand generation until their marketing is SUPER dialed-in, so in this case outbound is definitely a good strategy to consider.
Read PART 2 of this post, where I talk about how to model a customer’s LTV properly. We’ll go from “back of the napkin” math, to something more robust.