A strategic SDR compensation plan naturally aligns the objectives of the SDR team with that of the Sales Organization.
For example, restaurants figured out a long time ago that if they made their waiters share tips with bartenders and busboys, everyone made more money. In fact, the better tippers got their drinks made first and tables turned around faster.
It doesn’t pay to be stingy with tips. Same thing in Sales.
Providing decent variable compensation plans for your SDR teams results in significantly greater sales that more than covers the increase in compensation.
Our analysis shows that by paying out an additional 1.6% of sales in SDR variable comp plan and providing them with the adequate training and content support they need, sales can increase by twice as much. Hard to believe, but that is the magic of using your SDR team the right way and focusing them to build a quality sales pipeline.
Let’s remember that there are two reasons why the right compensation plan ends up creating the motivation necessary to produce far greater outcomes than the cost of the compensation:
- Everyone could use more money (especially those at the lower end of the pay rate), and will strive harder if paid more.
- It incentivizes the job for them—rewarding them for each small success so they are constantly achieving many small successes that lead to big wins at quarter or year end.
The Strategic SDR Compensation Plan
SDR variable comp plans have three components: what you pay for meetings; what you pay for pipeline, and what you pay on revenues generated as a result of the meetings set by the SDRs. Let’s discuss each in some detail.
Strategic SDR compensation 1: Meeting Bonus
We said that the SDRs should be measured on the pipeline they build and not on the meetings they set. However, meetings are the vehicles that make pipelines possible, so they do need to set meetings for the sales reps.
By paying a small bonus for setting approved meetings, we encourage SDRs to set more qualified meetings.
How it works:
- Let’s suppose that the SDR has a monthly quota of eight meetings per month.
- When the SDR sets a meeting, the SDR manager is notified and examines the details of the meeting—the title, company, completeness of details including email and phone number, date set (is it too far out or not), and completeness of notes.
- The sales managers inform the sales reps of any information that the SDR has gleaned.
- If the manager believes this is a qualified meeting, she will approve it. Otherwise, she declines it, which means the SDR will have to solve the critical problems that were present.
- If the manager approves the meeting, the SDR receives the approval email and knows he has just won his meeting bonus
- If you pay $25 per approved meeting, and the SDR meets his quota, he just made another $200 that month—this may not be a lot, but it creates small but immediate rewards towards which to work each day.
Strategic SDR compensation 2: Pipeline Bonus
The real job of the SDR is to build a sales pipeline. Each approved meeting has the potential to do that. To actually go on to the sales pipeline, the following must occur:
- The prospect actually attends the meeting with the sales rep
- The sales rep conducts a full discovery call and deeps that this can go on the pipeline because there is a viable sales opportunity here
- The prospect agrees to the next steps proposed by the sales rep
Let’s say we pay SDRs $150 per $100,000 of pipeline created (0.15% rate). We track this quarterly, which means that as soon as the sales rep creates that opportunity and adds the dollar amount, it counts.
In the CRM, we pass on the SDR’s name to the Opportunity created, and then run a report at the end of the quarter for all sales pipeline created that quarter (including those that were created that quarter and are now closed won or lost) and filtered by the SDR’s name.
The total amount multiplied by 0.15% is what is payable to the SDR as pipeline bonus.
Let’s say that the SDR turned in a total of 24 meetings of which 17 went on the pipeline, and the average deal size was around $100,000. That means that the SDR created $1.7million in pipe that quarter and earned $2,550 that quarter or an average of $850 per month.
So far, the SDR has added $1,050 worth of bonuses to his monthly pay and overall base salary. Considering the $1.7 million in sales pipeline he generated that quarter, the $3,350 we compensated that SDR for the quarter (including meeting bonus) is a very tiny added cost.
Strategic SDR compensation 3: Revenue Bonus
Now we get to the real bottom line–actual, converted sales. Let’s say the SDR consistently puts around $1.7 million in sales pipeline each quarter, and due to the improved quality of the pipeline, the sales rep can improve her closing ratio from 20% to around 25%.
Over a rolling period, she will close around $425,000 in sales performance each quarter.
Let’s say we pay the SDR $500 per $100,000 of sales won. That means the SDR is now getting around $2,125 each quarter in additional bonuses, or about $708 more per month.
That means, our SDR can now expect an average of $1,758 in additional performance bonuses each month. Or in annual terms, this adds $21,096 in variable compensation in addition to his base pay.
The SDR as a Professional
If we stop thinking of the sales development profession as an “entry level job”, similar to the way working in the “mailroom” used to be looked at, and actually see it as a high-skill craft with countless opportunities created, our sales reps will benefit and our company as a whole will benefit.
We need a holistic transformation of our view of the SDR profession—we need to train them, provide them with the resources they need, set the right metrics and KPIs, compensate them, and coach them as the high-skilled professionals they can and should be.