Is the Age of the SDR over?
When I first stepped into GTM Operations a decade ago I was challenged to simultaneously lead the SDR function.
My reaction?
What the heck is an SDR!?
And so it was. I leaned into managing a handful of SDRs. Six years before this, I was actually a seller. I picked up the phone and cold called down lists myself. Perhaps that was why the VP of GTM Solutions suggested I not only lead sales operations, but also lead a band of gutsy twenty something's to sales glory.
Let's F***ING go! Or as I preferred to slack my team “LFG!”
But one has to wonder if the age of SDR is nearing its end game. The reality is that the unit economics are rising so quickly, like sea levels, to the point that the “shores of SDR land” are disappearing. Only upper mid market and enterprise level deal sizes could feasibly support the SDR function.
If you’re new to this newsletter then welcome! Thank you to the 2,000+ revenue operations professionals who continue to subscribe to this newsletter. You’re the reason I continue to write each and every week on a Go To Market related topic. When I have a template to share paid subscribers will get access. I don’t have all the answers in revenue operations. That’s impossible because RevOps can be uniquely situated for each unique situation. But what I hope you can take away a few guiding principles or tactical snippets which you can use in your day to day. Before jumping into the newsletter, let’s hear from our sponsors that keep most of this newsletter free to readers.
Join a 10 week RevOps accelerator with the Unleashing RevOps Impact course. Enroll here.
Mere weeks left to save Q4. How are you optimizing the pipeline you currently have? Avoid Q4 deal slips with forecasting & pipeline management with BoostUp.
RevOps aren’t system admins. Growblocks is building the 1st RevOps platform, giving you full funnel analytics, continuous monitoring and revenue planning tools - so you can become strategic. Check it out here.
Let's dig into the math
Let's say for example you're paying $120K all in for an SDR. That figure includes base salary, on target variable (aka commission), and a 30% burden rate (includes benefits, payroll tax). To pay for these heads the sales team needs to boost top line performance.
But by how much?
Here's where your finance team helps. If you have 70% gross margins then you could simply take the $120K figure and divide it by 70%. That will yield $171K.
You have to bring in an extra $171K just to cover your cost of goods sold (COGS). At a 1:1 ratio you're asking your sales reps to bring in $171K in extra attainment. Even an enterprise rep with a $1M quota might bristle at a 17.1% attainment increase. For quota it would be even worse. Assume you've planned for a 70% attainment, your quota would need to be $245K ($171K divided by 70%). Tell your reps, “hey we're increasing quotas 24.5%¢ to $1.245M”.
At a 2:1 ratio you spread the load around. Instead of $171K from one rep, you're asking the reps to bring in $86K each. That's much more palatable. The quota increase would be $122K ($86K divided by 0.7). Still a difficult pill to swallow for teams.
At a 3:1 ratio each rep would need to bring in $57K each. That's an $81K quota increase. Much better. To make the sales team comfortable you could argue a few things to justify an 8.1% increase:
Price increases of 3% a year which you can pass on to your prospects)
Increased marketing spend leading to 5% improvements
Increase enablement resources leading to 5% improvements
Refined ICP and territories to increase attainment
Now if you're able to achieve all of the above including other options then you should be able to easily justify an 8% quota bump.
Deal sizes also matter because of rep capacity
A rep can only close so many deals a month. Plain and simple. Putting pressure on them to close more is always a given. But the grand bargain for bringing in SDRs is that they do exactly that. They bring in more pipeline for the reps to close. Without them, pipeline presumably would be smaller and therefore number of wins as well.
If we look at our deal sizes we can then determine how many extra deals will need to be generated. Let's keep using the $171K figure for these hypotheticals below:
$100K deal size = 1.71 deals per year
$50K deal size = 5.13 deals per year
$25K deal size = 10.26 deals per year
$10K deal size = 25.65 deals per year
$5K deal size = 53.25 deals per year
Assume that for $100K average contract value that your reps can close 1 deal a month. Here's what I believe are deal capacities per rep per year.
$100K: 1 deal per month ($1.2M quota)
$50K: 1.5 deals per month ($900K quota)
$25K: 3 deals per month ($775K quota)
$10K: 6 deals per month ($720K quota)
$5K: 10 deals per month ($600K quota)
Then you need to tack on the number of deals above to justify the cost of the SDR.
If you're drowning in leads
First of all, congrats to you on having a boatload of leads to sift through. If this is the case, then I can empathize with having SDRs going through the morass of leads. Heavens forbid we ask our sales team to work through inbound leads as well (SARCASM!).
One common argument is that SDRs are needed in order to tackle the lead volume coming in. AEs cannot be bothered to deal with leads! “Let the closers close”! In the ZIRP startups were tasked with growing topline. Funding would be easy just as long as you showed growth. You might be unprofitable but who cares. As long as you show the revenue you can always cut costs later and optimize from there.
Going high and low
Another argument to have SDRs is the ability to quickly canvas accounts both high and low with outbound. The tools of the trade include research, cold calling, emailing, SMS, and LinkedIn connections. Whatever it takes to connect with prospects. Going high up the organization means targeting senior leaders. Going low means focusing on the frontline managers and below.
With both AEs and SDRs an organization can tackle accounts in a two pronged approach. SDRs can work on starting low and move their way up.
If you cut, how deep?
Whenever you're ready, there are 3 ways I can help you:
1/ Sign up for my Revenue Operations courses in partnership with the RevOps Co-Op.
→ Unleashing ROI course. A ten-week virtual, live instruction RevOps course designed to level up your RevOps Impact (R.O.I.). Lessons from my career scaling from $10M to $100M+. Join 100+ alumni. https://www.revopscoop.com/learn/unleashing-roi-course
→ Sales Ops Masterclass. A six-week virtual, live instruction SalesOps course designed to take your sales operations skills to the next level.
2/ Sponsor this newsletter. Promote your Revenue focused startup to a newsletter with over 2,100 tenacious revenue leaders. Reply to this email if you’re interested in receiving a media kit to learn more.
3/ Some of you have reached out to me as Teams Of One looking for coaching. If you’re a solo operator and your company has tagged you as a high potential leader then consider my custom coaching offering between 4 to 14-weeks. I’ve had some promising early results with a client and I’d like to further test out these services. If you have an L&D budget or an exec sponsor then please email me to inquire.
Keep reading with a 7-day free trial
Subscribe to RevOps Impact Newsletter to keep reading this post and get 7 days of free access to the full post archives.