As a sales leader, it's essential to understand whether your sales development representative (SDR) team is profitable or not. This knowledge will help you make informed decisions about your sales strategy and resource allocation, and ultimately ensure the long-term success of your business. In this blog post, we'll explore how you can determine whether your SDR team is profitable or not.
Before you can determine the profitability of your SDR team, you need to understand their role in the sales process. SDRs are responsible for identifying and qualifying leads, so they can be passed on to account executives (AEs) for further sales activities. Their primary goal is to create a steady flow of qualified leads for the sales team to work on. This means that their performance should be measured based on the quality and quantity of leads they generate, rather than the revenue they bring in.
The next step in determining the profitability of your SDR team is to analyze the cost of running the team. This includes the salaries and benefits of the SDRs, as well as any expenses associated with sales tools or technology used by the team. You should also consider any overhead costs, such as office space and utilities. Once you have a clear understanding of the costs associated with your SDR team, you can calculate the total cost per SDR.
The contribution margin is the difference between the revenue generated and the variable costs associated with producing that revenue. In the case of an SDR team, the revenue generated is the revenue brought in by the AEs who work on the leads generated by the SDRs. The variable costs associated with this revenue include the salaries and benefits of the AEs and any expenses associated with their sales activities.
To calculate the contribution margin per SDR, subtract the variable costs per AE from the revenue per AE, and then divide that number by the number of SDRs who support that AE. For example, if an AE brings in $100,000 in revenue and has two SDRs supporting them, and the variable cost per AE is $50,000, the contribution margin per SDR would be $25,000 (($100,000 - $50,000)/2).
Once you have calculated the contribution margin per SDR, you can compare it to the cost per SDR to determine whether the SDR team is profitable or not. If the contribution margin per SDR is greater than the cost per SDR, then the SDR team is profitable. If the contribution margin per SDR is less than the cost per SDR, then the SDR team is not profitable.
While profitability is important, it's also essential to evaluate the impact of the SDR team on overall sales performance. This includes factors such as the number and quality of leads generated by the SDR team, the conversion rate of those leads into opportunities, and the overall revenue generated by the sales team. If the SDR team is generating high-quality leads that convert into opportunities and ultimately drive revenue growth, then their profitability may be less of a concern.
Finally, it's important to make informed decisions based on the data you have collected. If your SDR team is profitable and driving overall sales growth, you may want to consider investing more resources into the team to expand their capabilities. If the SDR team is not profitable, you may want to evaluate their processes and make changes to improve their performance or consider restructuring the team altogether.
In conclusion, determining the profitability of the SDR team can be an exhaustive yet valuable exercise in understanding how and when to scale the team.