The True Cost of Your SDR Team

Benefits To Consider When Building an SDR Function

Using a team of Sales Development Representatives (SDR) or Business Development Representatives (BDR) to generate qualified leads for your sales executives is a proven method of driving predictable, sustainable revenue.

(After all, there was a whole book written about it…)

However, the cost of instituting an SDR team is often miscalculated. The decision to build or outsource must consider the full cost of hiring, training, managing, and employing a team of reps.

💡 According to the article, “How Much Does An Employee Cost?” by Joe Hadzima, there are a handful of unforeseen costs that accompany the hiring of an employee. He cites Basic Salary, Recruiting Expenses, Taxes, Benefits, Space, and Equipment as the main external factors to consider when hiring an employee. Each comes with its own challenges and associated costs to consider during your employee search.

Often, the costs mentioned in this article are overlooked, resulting in a misassessment of value.  

Below, we discuss the expenses to consider when building out a team of SDRs and how much you should expect to spend if you build the function in-house. 

* The numbers below have been gathered by demandDrive through our own research and represent averages across 7 key regions in the United States.

How Much Does an Employee Cost?

Salary

Three Reps: Salary = $66,913 OTE (X3), Total: $200,739

An obvious cost of an SDR team that everyone recognizes – you have to pay your reps! And it’s not just their base salary, but their On-Target Earnings (OTE) as well. This figure includes extra costs like their commissions, winnings from contests, incentive programs…it can rack up quickly, especially if you have a good rep (which you want – it’s expensive to hire bad talent!).

Manager Salary: $97,235 (OTE)

Most often companies have two options when it comes to managing their SDR team. They can:

1) Hire an Inside Sales Manager to provide continuous support and maximize the results of the SDR team, or

2) Use the (far more expensive) time of a VP or Director to manage the team in addition to his or her vast responsibilities.

Whether hired or promoted internally, hiring a manager is a necessary cost to maximize the success of your SDR team.

Hiring Costs

Hiring Costs (~40% of salary): $114,556

Employment taxes, health benefits, payroll costs, workspace, computers, phones – these are hard costs of an SDR team that are unavoidable when hiring.

In addition, attracting the right talent to your organization is no small cost. Recruiting expenses coupled with the time-consuming interview process can be pricey. Considering it is still necessary to train these new reps means paying for a training program, and taking time away from current employees to train new SDRs.

Tech

Sales Tools: $10,827 / rep / year, Total: $32,481

The modern sales stack is chock full of technology: CRM platforms, high-quality data services, outreach tools, sales intelligence technology… they’re all necessary expenses when building an SDR team.

If you want your reps to succeed, then you’re going to have to provide them with the tools to do so.

Office

Office Costs: (Space, Hardware, Supplies) $34,750

Space: $22,404

Renting office space is expensive, but it can be hard to measure the impact an individual employee has on rent. Luckily shared office spaces can give us a better idea of how much cost we can associate with one desk in a given location.

Hardware: $8,400

For most companies, the hardware costs are baked into the internal hiring process, but as your company continues to grow the need for cost-effective solutions becomes a necessity. Until laptops start growing on trees, this is something you’ll have to provide.

Supplies: $3,950

Finally, you have to deal with the increased amount of office supplies your SDR requires. Beyond the obvious – like a desk and chair – they’re going to use your notebooks, pens, paper towels, kitchenware, etc…and that can add up significantly over time.

Total: $480,770

All these costs of an SDR team add up quickly. Coming in at just over $480K you can expect some sticker shock – especially when you might have first budgeted ~$200K to build out your team. Hidden expenses like workspace/equipment, manager’s salary, sales enablement tools, etc. really drive that number up.

Often you’re picking between spending actual money (buying tools, equipment, hiring a manager) or the opportunity cost of existing resources (using current employees to train new hires, giving managers double duty). Either way, it’s not an enviable position to be in.

Alternatively, a standard three-rep program with demandDrive costs under $400K / year. With nearly $100K in immediate savings, organizations can reallocate funds to improve their product/solution and catalyze growth. Cutting overhead costs (and the headaches that come with them) through outsourcing can be a viable (and healthy) alternative.

And it only gets more attractive from here…

Full Cost Breakdown + Regional Analysis

Curious to see how much you would save? Try our Sales Development Cost Calculator

How It Works

Select your region and the number of SDRs you want to hire, and the calculator will output the difference in price between an in-house team and a demandDrive program (over the course of 1 year).

What Happens When You Hire the Wrong Employee?

The scenario above outlines a situation with a “perfect” SDR and 100% retention. Accounting for the true cost of an SDR’s poor performance and turnover naturally, increases the Total Cost of Ownership.

According to research done by UndercoverRecruiter, investing in hiring, onboarding, and firing a new employee can end up costing around 30% of their first-year earnings.

These bad hires also negatively impact total sales opportunities – on average, a failing SDR loses 10% of their total sales opportunities compared to a strong rep.

Additionally, when you replace a poor hire with a new hire, you can expect your existing team to lose 40% of their time to hiring, onboarding, and training.

In The Perfect Hire: A Tactical Guide to Hiring, Developing, and Retaining Top Sales Talent, Katherine Graham-Leviss uses the above to paint a hypothetical scenario:

Let’s assume the average salary in a given company is $50,000 per year. If the cost of turnover is 150 percent of salary, then the cost would be $75,000 per departing employee. For a company of 100 employees with a 10 percent annual rate of turnover, the annual cost of turnover would be an estimated $750,000.

Turnover is virtually unavoidable when it comes to hiring and onboarding new employees. There will always be SDRs looking to advance their careers, individuals who aren’t great fits culture-wise, and people who do not live up to interview day promises. No matter how much money you funnel into your recruiting and training programs, you will always have employee turnover – it’s an unfortunate reality. Add that to the price of hiring and onboarding reps and the total cost of an internal SDR team grows steadily higher.

The Benefits of SDR Outsourcing

Should you choose to outsource your sales development function, that risk is significantly mitigated. Yes, the outsourced company must deal with turnover as well, but based on the nature of the business they’re better equipped to promptly hire or replace a failing SDR. By eliminating the downtime of looking for a new rep, you can focus your efforts on other aspects of your business while maintaining a steady rotation of SDRs.

How a Wrong Hire Can Drain Resources

When you make a “bad” hire, it not only impacts the short-term productivity of your team but it impacts long-term success as well. The reverberations of a bad hire sound deep into the future, as current employees must shirk their own responsibilities to train/onboard a new (new) hire while absorbing the responsibilities of the failed one.

Instead of uncovering sales opportunities, your current SDRs are going through the training process with the new hire to get them up to speed.

Your sales managers are giving the new hire the same workshop they just gave to the old “new hire,” and are less hands-on with the current team.

Recruiting isn’t building a talent pool, but instead depleting it to cover turnover.

Over time, you may also suffer from:

Credibility Loss: You want your brand represented in the best possible light, and one or two bad experiences with prospects can set you pretty far back. A bad rep can damage more than just your pipeline, they can hurt the name and brand that you’ve worked so hard to build.

Slippage: Work that isn’t being done has an associated cost. The time it takes for other reps to pick up the slack from bad/fired employees takes away from their own activity, and this means less closed deals or appointments booked. The opportunity cost of your top SDRs picking up the slack can spoil your sales process.

Ripple Effect: Just because one employee leaves/lazes around doesn’t mean others won’t be impacted. All it takes is one bad apple to ruin the basket, and when the basket is ruined it can be costly to replace/freshen up.

Knowing all of this means it’s imperative that your team focuses on hiring the best possible reps – otherwise it hurts your bottom line. In his article, How Much Does An Employee Cost?, Joe Hadzima says:

“Be sure to devote the time to make sure that your hires are as close to perfect “10’s” as possible. Anything less will be a drag on your business.”

Unfortunately, that’s easier said than done. And again it brings us back to the benefits of SDR outsourcing. Working with an organization that’s wholly dedicated to finding and hiring those “10/10” employees can limit a lot of problems discussed above. You won’t (and shouldn’t expect to) find a 10 every time, but the reality is the effort and resources your team has to put into finding them is much higher than what an outsourced provider can deliver.

Addressing False Stigmas of Outsourcing

Daniel Paul, Co-Founder @ demandDrive, addresses some pre-conceived notions RE: outsourcing

Here’s the thing: Technology companies are familiar with the idea of outsourcing aspects of their business.  There are many prominent Business Process Outsourcing (BPO) firms that provide both back-office functions like HR, accounting, and finance, as well as front office functions like customer service.  The benefits of SDR outsourcing are also well documented, as companies can leverage experts who have built businesses around these specific processes (and who can often provide them at lower costs), so they can focus on perfecting what makes their business great.

In short:

While the idea of outsourcing isn’t new, many companies are reluctant to employ outsourced vendors in sales, particularly in sales development.  There are many reasons for this, however, businesses may be overlooking a great opportunity.

Brand Representation

A sales development rep is often the first point of human interaction a prospect will have with your brand, and the importance of representing your brand the right way is paramount. For that reason, it’s understandable that companies may be a bit hesitant to trust a third party with such an important function. Like we talked about above – one bad interaction with an SDR and the credibility you’ve worked so hard to build can tumble down.

That said, many of the same companies are comfortable working with creative marketing agencies or PR firms to help define and represent their brand. These agencies draw on decades of experience and are experts in the design and execution of your brand strategy. This partnership also allows companies to leverage larger teams on an as-needed basis, rather than carrying an abundant headcount in the creative department.

The same can be true with the right Sales Development partner. Experts in the Sales Development space draw on years of experience building and managing teams in many different markets. As a result, guidance on how to represent your brand and the appropriate channels to do so comes from a deep pool of knowledge that might not exist internally.

Security & Control

Another reason a tech firm might think twice about outsourcing their SDR function is concern over security and an overall lack of control. Why would you give a third-party access to and control over extremely sensitive client & prospect data? That sounds like a huge risk – one that prompts many companies to keep the function in-house and their data close to the chest.

That said, companies are now so used to the SaaS model and its benefits that it’s difficult to imagine doing business prior. Imagine maintaining the infrastructure, software updates, and giant IT closets filled with servers. So 1990. The flexibility, and scalability of the SaaS model far outweigh any perceived risks related to security.

The same is true when working with a quality outsourced services provider. With a proper contract structure, the security risks of working with a third-party vendor will often be minimal compared to an in-house team.

Cost Benefits of SDR Outsourcing

When you hear of a company outsourcing a function like a call center or IT development, it usually conjures up two assumptions: it will cost less, and the quality will be lower than an in-house team. And that can still be true – it all hinges on the company you end up working with and the expectations you have going in (relative to the cost you paid).

With the right firm, it will cost you less to outsource an SDR team than building it internally (as shown above), and the quality can actually increase with the right training and experience. These are all things you can (and should) discuss with a firm before entering any type of contract. Transparency around pricing and expectations will eliminate any gray areas around the team they build. And if they share pricing that seems too good to be true, it probably is.

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Our take? It’s time to shed the stigma associated with outsourcing your sales development team and begin to realize the many benefits SDR outsourcing provides.