The Argument Against Hiring Sales Development Reps

Over the last few years I’ve had 20+ conversations with founders about hiring for Sales Development Reps (SDRs).

There are times where this makes sense - but often founders are doing this way too early.

An SDR is someone whose job is to set meetings between an Account Executive and qualified prospects.
This is usually an entry level sales job - the sort that a new college grad will find themselves in. This role is sometimes called Business Development Rep (BDR).
For simplicity I am referring to the role as an SDR throughout this piece.

The Problem With SDRs

The answer is simple -

SDRs are expensive - really expensive.

Let’s break down the costs of hiring a US based SDR in their first year:

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You can quibble on the exact cost but here are the core problems:

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1. Most of these expenses aren’t that flexible. You might be able to trim this number by 5-10%, but you aren’t cutting these numbers by 50%.
2. An Account Executive gives you so much more for your money
3. SDRs require more time, more effort and more management focus than Account Executives because of their career phase

Let’s talk about the outputs you can expect from both of these hiring profiles

SDR assumptions:

Let’s assume you set a quota of 12 meetings per month, and have a 2 month ramp quota. For simplicity sake here, we’re assuming that the SDR books zero meetings during their ramp.

At the one year mark you’re planning on promoting your SDRs into being Account Executives. We're going to assume this SDR has hit quota 100% every month after they come off their ramp.

Over the course of a year, you have received 120 meetings. Each meeting has cost you a little over $1000. These meetings may or may not have contributed to any deals closing.

Also worth mentioning: once you add in the cost of an SDR manager (assumption: all in cost for this person is $160k and they manage 4 reps), your per SDR cost is closer to $165k. Compared to Account Executives, SDRs usually need much closer management, partly because of the tools they use and their lack of sales experience.

AE assumptions:

Let's assume that this Account Executive has a 3 month ramp, where they're expected to close nothing, and then has a full quota for the remaining 3 quarters. We're going to go with standard 1:4 OTE:Quota ratio, which means that if we're paying this rep $200k a year, we expect them to bring in $800k.

Taking this logic, assuming our Account Executive has hit 100% to quota, they have cost us $280k, but also bought in $600k in net new revenue.

However, the cost needs to be looked at through a different lens. The variable compensation for an Account Executive is only paid out once new revenue comes back in.

By comparison, SDR compensation is not explicitly tied to new revenue coming in.

Because of this, it almost always makes sense to hire your first 2 (and maybe even your first 4) Account Executives before you even start thinking about adding SDRs.

​So when should you bring in SDRs?

In my view, you should be able to answer two questions:

1. Are my Account Executives hitting quota?
2. Is my business at the point where building a future talent pipeline is a good focus?

SDRs are a GREAT Future Talent Pipeline

Since 2016 I’ve placed 62 SDRs

Here’s how long they stayed with their respective companies

I’ve also placed 45 Account Executives over the same time period

It’s not even close - SDRs stay so much longer than Account Executives.

A couple of notes about the data:

1. The last SDR I placed from this data started in August 2021
2. A good percentage of people who are 2,3 and 4 years in are still at their current companies. So the retention percentages are actually even better than they look. Almost everyone who’s been at their current company for 5+ years is still there!
3. This data is very conservative. If someone has stayed for 3 years, they have stayed at least 3 years. If someone stayed 2 years and 11 months, they’re marked as staying for 2 years
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No SDR I’ve tracked spent more than 2 years in the SDR gig, with most moving to Account Executive roles. However some have moved into positions like SDR Management, Marketing and Internal Recruitment (amongst others).

So, what’s next?

If you are at the point where are thinking about hiring - be it SDRs, Account Executives or other sales talent, book a time to speak with me here and we can talk about what working together looks like