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SDR Teams Cost More than AE Teams, but They’re Still a No-Brainer Investment (Here’s Why)

 

It would be foolish to tell you that every CRO and CFO I talk to agrees with me in saying that SDRs are a no-brainer investment.

In fact, it’s typically the opposite.

Most companies are intrigued by the potential of SDRs, but cautious when investing the necessary resources to build a proper team.

Setting up an SDR team is, after all, more expensive than an AE team. And this is despite the fact that AE’s have higher salaries.

I know you’re skeptical. So, let’s dive in and analyze the costs to set up these teams, and why, despite the cost, I believe an SDR team is worth it.

Note: For purposes of this article, we’ll assume you’re hiring your first two AEs or SDRs. We’ll also assume you sell a mid-market $50K ACV SaaS product.

The AE Setup

No one questions that hiring AEs is something you must do. You need them to succeed.

But think about what’s required to make your AE successful. They need a computer, access to a CRM system, and access to Zoom and a tool like HelloSign or PandaDoc.

All-in-all, you don’t need to buy many tools that you weren’t already using yourself in the early stages of the company.

And the best of all, these tools are all relatively inexpensive.

Powerpoint or Google slides are free, and product demos don’t need much more. Zoom is just $15, and PandaDoc is only $9 per month. So, for $24/month, your tech stack is ready.

And with the right setup in place, onboarding is almost as simple. You can quickly train the AE on the product, have them shadow a successful team member, and then let them hit the ground running.

Your salary costs, according to Peak Sales Recruiting, are 90K on average and $180K OTE (on-target earnings). Also, commission is only paid if they sell and cash comes in, so you only need to budget the base salary as sunk cost in case of failure.

Plus, AE’s in the early days don’t need a manager. They can report to the CEO. And training (if any is needed) is minimal.

Add about $35K for taxes, benefits, and insurance, and your final cost is $125K plus $2K in tools. Call it $127K that your CFO needs to budget for each AE. Multiply by 2 for our example of a small team, and it’s a $255K risk for the year.

If you sell $0, $255K is your max loss.

And within 6-8 months, you’ll know if the decision was a good one or not.

After six months the AE should have taken enough inbound meetings while also connecting with their network to fill their pipeline. And a good AE will have already closed a sale or two. If not, you can cut your losses at ~$170K for the two AEs.

The SDR Setup

At first sight, it seems like SDRs would be much cheaper. After all, they’re typically younger and have less experience. And for that reason, their salaries are definitely lower than that of AEs.

But you’ll soon see that may not be entirely true.

Let’s start with tools.

The most successful SDR teams can’t operate without a minimum of one good data tool.

ZoomInfo, for instance, starts at $25K. Most great teams also do something for Account Targeting and supplementary data. DataFox and Everstring are both around $20K, and LeadIQ is $10K. Plus, you also need CRM access.

Do you see how the costs begin to add up?

Also, unlike the AE role, SDRs require a manager. You can’t simply hire a young, hungry-for-success professional and let them do as they wish.

According to Betts Recruiting, a manager costs $120K on average in base salary and $160K OTE in San Francisco. Add another $40K for taxes and benefits, and you’re anywhere from $160K to $200K.

Let’s assume that they could manage up to 8 SDRs, so 2 SDRs would be a fraction of that (the SDR manager can be productive doing other stuff for the rest of their time). So let’s say the fractional cost of this role is closer to $40K base, $50K OTE.

On average, the salary for an SDR is $55K, and OTE is $80K. Add the $30K for taxes and benefits, and the cost per SDR is $110K.

Your final math is 2 x $110K + $50K for fractional manager + $40K in tools = $310K.

If you account for a full-time manager (rather than calculating it fractionally), you’re at $460K.

Moreover, your SDRs might take 4-6 months to reach full productivity. The Bridge Group estimates that an Outbound SDR of a $50K ACV product can produce 3-5 meetings per month. And it might take you a full year to realize if any of those meetings are converting into actual revenue and if your SDR team is productive.

This all means that your risk of testing 2 SDRs is $310K. That’s 82% higher than the $170K for AEs.

How Can SDRs be justified?

The average company in the SaaS space has a 16 month CAC (Customer Acquisition Cost) payback. That means that for our $50K ACV (Annual Contract Value) product, you can spend up to $67K to acquire a customer, and you’d be fine. As an early-stage company just starting, even spending $100K would be fine.

However, remember that for CAC, you need to take into account all sales and marketing costs. And that means all salaries for all employees.

Let’s look at an example.

Let’s assume 2 SDRs would fill up 1 AEs pipeline completely, and the AE hits their goal.

This could mean up to $310K in SDR costs and $227K in AE costs, based on our earlier calculations. This gives us a final cost of $537K.

That means that at an acquisition cost of $67K per client, you need to acquire eight clients. At an ACV of $50K, you need to generate $400K in revenue for your CRO to be extremely happy.

If we take less ambitious goals and use $100K cost per client, you would need five to six clients, or about $270K in revenue to justify the cost.

Any less than that and the SDRs weren’t worth it. Any more than that, and get ready to grow your SDR function.

If you’re confused by how it’s possible to spend more money than you make and be successful in SaaS, or if you want to see a more detailed calculation: The Scientific Approach To Setting Sales Goals For Your SDR Team {Template Included}.

Setting Goals for Your SDR Team

So how do you make sure you’re getting the right number of clients for your SDR team to be profitable?

You need to set good goals.

This can be achieved in many ways, but let’s stick with industry averages and say:

  • 55% of SDR generated ops move to pipeline
  • 20% of pipeline deals close
  • You need eight deals (based on our earlier calculation)

If we start with our end goal of eight deals, we work backwards from there. If our AE’s are likely to close 20% of the deal in their pipeline, then we need 40 meetings in the pipeline.

And to get those 40 meetings, at a 55% success rate, our SDR team needs to generate 72 total meetings. That is roughly three meetings per SDR per month, which is not too hard to achieve if they have the right tools and training.

The biggest problem I see isn’t that companies spend too much on SDRS. It’s that companies go cheap in the wrong areas. If you go cheap on data, you’ll see your SDR target the wrong accounts 20% of the time. That in itself will cost you tens of thousands of dollars.

Ultimately, most small SDR teams fail due to a lack of correct processes and setup. Many companies, therefore, decide to outsource, but that brings its own set of challenges.

Final Thoughts

Now that you have a better understanding of the costs associated with hiring both AEs and SDRs you can formulate a plan for building a team that suits the specific needs of your organization, your short and long-term goals, and your budget.

So what’s the takeaway here?

Even though SDRs cost more than AEs, after you take all expenses into consideration, they are still a no-brainer investment.

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