A lot of companies think that in order to be effective in sales, they need a large team of young, inexpensive "Sales Development Reps" (SDRs) lining up emails, inmails and sales calls and talking customers into exploring their products & services. This model of sales started in Silicon Valley, and has been successful in expanding the reach of many SaaS and other technology companies.
But for some companies, the model has backfired. In fact, for most companies, the heyday of the original SDR model is past. Here’s why.
The current SDR model and the law of diminishing returns
In my work, I interact with hundreds of sales professionals, from executives to managers to reps. Over the past few years, I’ve noticed a dramatic decline in the overall effectiveness that sales departments are experiencing on their SDR teams.
I don’t have hard numbers, but based on my observations, I estimate that SDR effectiveness has gone down by at least 50% over the last three years. Meanwhile, the cost of SDRs has gone up. In San Francisco, the average pay for a junior SDR is $100,000, according to local recruitment firms. Not really inexpensive.
If you estimate that the average SDR schedules about 12 meetings per month1, and calculate that against their salary, that means your cost per meeting is about $700. That’s without counting the value of the account executive (AE) who handles the sale. If you calculate for the salary of the AE and estimate a 20% win rate, you come up with a cost per sale of around $9,000 to reach break-even. And that’s before you calculate the cost of employee overhead, delivery and support for the sale, or the cost of SDR churn, which is significant. Add a factor of 1,5 and you're closer to the truth, so about €13,500.
By this logic, your team can’t sell anything cheaper than $13,500 without incurring a direct loss.
Even worse, the situation is deteriorating. I predict that every year, the overall effectiveness of each SDR will decline, if more and more companies opt in for this approach.
Why the current SDR model is dying
There are many reasons for the declining effectiveness of the SDR model. At its core, what has happened is that a model that was effective in the early stages of its implementation (at least for some businesses), is not effective in its mature stage. Early on, it was easier for a junior SDR to schedule meetings with a slick sales script, because competition for your buyer’s attention was lower, and customers had time to listen.
Now, however, customers are saturated with endless sales emails, voicemails, and phone calls. They don’t have time or patience for one more salesperson promising to change their lives, and they’re savvy to, and wary of, the approaches that used to catch their interest.
So what is a sales department to do?
Today, many sales organizations “solve” the problem of declining SDR effectiveness by hiring more SDRs with the motto “let’s work faster and harder.” While this may, in the short term, increase topline revenue numbers, it’s ultimately a losing strategy. This approach increases expense without increasing profit margins - for those who care about such an old-school business metric ;)
A better solution is to increase overall sales team effectiveness. Here’s a model that has been working for a lot of companies that our partners work with:
Understand where you want to play. If you’re dealing in volume, you may be better off focusing on online marketing, chat bots and other forms of automation to manage your sales process. If your sales are complex, however, a system based on making the best use of sales professionals is called for. In that case, my suggestion would be to:
- stop focusing on volume-based, templated outreaches by inexperienced juniors.
- focus on tailored business value-oriented outreaches by skilled salespeople.
- hire assistants dedicated to maximizing the time that your value-based sales professionals spend in front of clients, and preventing that deals fall through cracks.
Of course, I’d be remiss if I didn’t mention that our platform at Membrain is designed specifically to support the effectiveness of a more qualitative sales approach to elevate performance using a combination of sales process & methodology, training reinforcement, enablement, coaching and analytics. I’d love to show you how it works. Reach out to schedule a demo.
1 According to experts in the field.