As we work with clients, we hear the same questions over and over again: Should we hire more Sales Development Reps (SDRs), or sales reps? Or both?
And our response has been invariably the same—it depends.
- If your conversion metrics are all good, then by all means hire more.
- If not, fix your conversion metrics first before you hire more. Otherwise, you are throwing good money after bad.
Let’s say your sales goal is $10 million and your average deal size is $100,000. This means your reps need to close 100 deals. So far, looks pretty straightforward.
Here is where the “it depends” part begins.
· If your average closing ratio is 10%, then you will need 1,000 opportunities in your pipeline
· If your average closing ratio is 20%, then you will need 500 opportunities in your pipeline.
Just this one metric alone clearly demonstrates that improving the quality of the pipeline reduces the burden on both your sales and SDR teams. SDRs don’t have to book as many meetings, and sales reps don’t have to struggle to work with so many prospects at the same time.
It also makes it easier to see why you will not need to hire more SDRs or sales reps with the second scenario, while you are more likely to believe you “need” more of both with the first one.
The SDR Funnel Math
But, I’m sure you know it’s more complicated than that.
Working with the conventional three-tier funnel model (Top, Middle, and Bottom), Marketing is supposed to keep filling the Top of Funnel (TOFU) with qualified prospects so that enough go to the Middle of the Funnel where your SDRs call to qualify and book appointments for the Sales team, which works on the Bottom of the Funnel to push prospects through the funnel to a close.
For this article, we will focus on understanding what is happening in the Middle of the Funnel.
Let’s say on average, each of your SDRs can book around 5 meetings a month, of which sales accepts about 70%, and of those Sales accepted meetings, about 66% make the meeting (one-third are no-shows or cancellations because the prospects didn’t see any real value in making the meeting).
Also, let’s say the average deal size of these leads were they to convert is about $75,000
So, the pipeline value that your average SDR is building for the sales team is = 5 meetings x 70% acceptance rate x 66% show rate x $75,000 or $173,250/month per SDR. Not much, and may be the reason why you were thinking of hiring more SDRs.
However, before adding to your payroll cost, think of what can be improved.
What if I showed you that you can increase the average pipeline to $484,500/month per SDR—a 180% increase in pipeline built? Would you first look into that to see if that were possible, or still go ahead and waste time and money hiring more SDRs?
I am going to assume you said you wanted to first look into how you can increase the average pipeline built by 180%.
Looking at our formula above, there are four key metrics we can improve:
1. Average meetings set by a SDR per month
2. Average Sales acceptance rate (a measure of quality of the meeting)
3. Average meeting show rate by prospect (also an indication of the quality of the meeting set)
4. Average deal size (again, a measure of the quality of the meeting)
Improving any one of these metrics will improve the average pipeline size built by each SDR. Improving all four metrics will dramatically improve the average pipeline built by each SDR.
The Before and After In Action
Look at the chart below:
We see that we are making small improvements in the range of 20% (for appointments set per month/SDR) to about 36% (number of appointments accepted by Sales).
And yet, the cumulative impact is 180% increase in sales pipeline built
Not just Pipeline Metrics—Sales Metrics also Improve
In fact, you can argue that if you improve the quality of the pipeline (highly qualified and more motivated prospects in the pipeline), then the average closing ratio of your sales reps should also improve. After all, they are meeting with the right people who are also highly engaged.
If we assume we improved the average closing ratio by 25% (from 20% to 25%), then actual booked sales will improve by a whopping 250%–just from the above quality tweaks.
Training and Support–The Secret Sauce to SDR Funnel Math
Improving the SDR metrics and understanding SDR Funnel Math is the key to improving sales metrics. And the secret sauce to that is training and optimizing your existing SDR team.
Before you hire more people, fix these metrics. As an old mentor of mine used to say, “First, Nail it. Then, Scale it.”
Would love to hear your thoughts on this. Let’s schedule a call to see if we can help you analyze your current SDR operations and see if there are any gaps that need to be addressed. Visit our homepage to learn more about us.