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Does your organization has a dedicated sales development team? Have you divided your sales organization into specific roles, particularly that of SDR and AE? If not, then now is the right time to consider!
While both work closely to nurture a smooth customer journey in your sales process, the skillsets and specializations of SDRs and AEs are very different from each other.
SDRs are primarily responsible to qualify inbound and outbound leads, determine next steps and schedule demo for the prospects with AEs. This is called prospecting or developing leads into “opportunities“. SDRs take the burden off the Account Executives and build a healthy sales pipeline for them with highly qualified leads so that AEs can focus more on selling.
After prospecting phase is over, the leads are transferred to AEs who nurture the account and take it all the way to closing it by closely interacting with the decision makers on the prospect side. Their prime focus being opportunity management, they engage the prospects through various sales techniques such as product demo, presentations etc. They covert the opportunities generated by SDRs into “deals”.
With specialized and result oriented sales process you get a steady and healthy sales pipeline, which reduces cost and eventually increases your revenue.
However, what should be the SDR to AE ratio, that is one of the compelling questions often confronted by the sales leaders.
While there is not a universal ratio, as it depends on numerous factors such as your sales cycle, type of business etc. we can use some formula to find the ideal ratio. One such formula, according to TOPO can be derived from “working backward”. Start with your revenue projection.
Method # 1 Use Revenue to Find Ratio of SDR to AE
Here are the steps:
Step 1- Project your revenue to find how many conversions are needed:
Find your revenue target first and divide by the average deal size to obtain the number of deals your sales team will require to reach your targeted revenue:
Number of Closed Opportunities Needed = Revenue Target ÷ Average Deal Size
Step 2- Find out how many SQLs does it take to get to closed deals:
Use your historical data to find the SQL (sales qualified leads) to Closed Deals ratio. When you have that percentage, you can find the number of SQLs you will actually need in your pipeline. SQLs are the leads that get passed on to the AEs as opportunities after SDRs stamp them as verified.
Number of SQLs required in the pipeline = Number of Closed Opportunities Needed x Rate of Conversion of SQLs to Closed deals
Step 3- Set the quota for the SDRs to find the number of SDRs needed.
Determine a rough but closer to a realistic quota for one SDR. When you divide the number of SQLs needed by this SDR quota, you get the number of SDRs that you need in your sales team.
Number of SDRs Needed = Number of SQLs required in the pipeline / Per SDR Quota
According to Bridge Group research the average SDR:AE ratio should be around 1:2.5
Method # 2 Use AEs Quota to Find Ratio of SDR to AE
Another method to obtain the ratio is through AEs quota and not from the revenue estimate. In this case, you will need the following three metrics beforehand – AE’s quota, Average Deal Size, and Win Rate percentage. Before you move forward with this you need to have the following numbers ready (study historical data and infer):
– Assumption 1- what percentage of the pipeline you would want only SDRs to generate
– Assumption 2- how many stage-one opportunities each SDR can produce
1) Work towards how many opportunities every AE will need, which will be
AE Opportunities = AE Quota / Deal Size/ AE Win Rate
2) Based on assumption 1 (the percent of the pipeline you want SDRs to generate), find out the number of opportunities each SDR needs to source to AEs
SDR Opportunities per AE = AE Opportunities * Percentage of Pipeline to be generated by SDR
3) Based on assumption 2 (number of opportunities SDR can generate), find the SDR: AE ratio
SDR:AE = SDR Opportunities per AE / Number of Opportunities SDR can generate
Besides relying on the formula, a lot of sales leaders, particularly from smaller organizations keep it simple by starting from just 1 SDR to support multiple AEs.
If the ratio is 1:1 it is called partner model. In the partner model, SDR and AE will be complementing each other with their skillsets.
Another modern, tried, tested and scalable model is POD which is a cross-functional team where multiple SDRs are mapped to one or two AEs. In a POD there are SDRs, few AEs, and CSM or customer success manager who turns deals into recurring revenue. This type of structure to organize your team is best suited for complex sales cycle say, in the case of SaaS businesses.
However, in reality, as a sales leader, you will have to find your own method to see what is the ideal sales structure and what ratio of SDR to AE to CSM works for you.
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