The Ratio Between Sales Development and Sales: The Secret to High Growth
The modern sales development organization revolutionized the way companies could think about pipeline and revenue growth. Separating the prospecting and qualification of leads from the later stages in the sales process enables the sales organization as a whole to become highly specialized and more effective. Without the distraction of having to find and qualify their own leads, and with the assurance that their pipeline will be consistently filled with opportunities, sales reps can optimize their own sales process to increase conversions throughout the pipeline. This is all to say, the true value of a sales development team is that it enables sales reps to focus on what they do best: close business.
Great companies understand this, and the market has realized the strategic importance of sales development in driving high growth. The fastest growing companies in the world are investing in building their sales development teams with unprecedented dedication. TOPO’s 2014 Sales Development Benchmark Report revealed an incredible trend: The fastest growing companies maintain a remarkably tight ratio of sales development reps to inside sales and field reps.
Register for our upcoming webinar, 11 High Growth Sales Development Strategies, where TOPO’s Chief Analyst, Craig Rosenberg, will discuss the impact of close ratios between the sales development and sales organizations.
SDR to Sales Ratios for Companies Under $25MM in Revenue
50% of organizations early in their growth (under $25MM) have a ratio of 1 sales development rep to 1 sales rep. Some organization benchmarked had more than one SDR per sales rep. Aggressive ratios of SDRs – sales reps are table stakes for companies in the early growth phase. Sales reps need to have as much in the pipeline as possible, and the best way to ensure consistent, high-quality opportunities is to have as many SDRs as possible passing qualified leads to sales.
SDR to Sales Ratios for Companies Over $25MM in Revenue
High growth organizations try to keep these close ratios for as long as they can sustain them. But as a company grows, the reality is that the increased size of the sales organization cannot sustain a 1 to 1 relationship with the sales development organization. After $25MM, the average ratio grows to 1 SDR per 4.4 sales reps. That said, the larger enterprises that are able to sustain a high level of growth year over year, still invest heavily in the sales development function to drive that growth. TOPO believes the optimal ratio after $25MM is 1 SDR to 3 sales reps. Ratios above 1 to 3 prevent SDRs from getting significant traction for the sales reps they support and often leads to poor relationships with the neglected reps.
Determining the Right Ratio for Your Organization
While data offers key insights, you can determine the precise ratio of sales development reps to sales reps that makes sense for your organization. Use the following sequence of formulas below to calculate the number of SDRs you must hire to cover the needs of your sales team.
1. Revenue Target ÷ Average Deal Size = Number of Deals Needed.
Work backwards from your revenue target to determine the number of opportunities sales needs to close. By dividing your overall revenue target by the average selling price of your product, you can calculate the number of closed/won opportunities you need to achieve that goal.
2. Number of Deals Needed × Conversion Rate of SQLs to Closed Deals = Number of SQLs Needed.
Here, I am defining an SQL (sales qualified lead) as a lead that a sales development rep considers a viable opportunity (typically, it must meet the criteria of a sales qualified lead definition that the organization has signed off on), and hands off to a sales rep. Some companies consider these stage 1 opportunities. Accounting for conversion rates throughout the funnel, work backwards from the number of closed/won opportunities needed to determine the number of SQLs the SDR team will be responsible for generating.
3. Total SQLs Needed ÷ Individual SDR Quota = Number of SDRs Required.
Divide the number of SQLs required by the organization by the quota you have set (or believe to be reasonable) for the SDRs, to determine how many SDRs are necessary to provide the required number of SQLs. For reference, here are the figures from our benchmark data on the number of SQLs an individual SDR generates per month: inbound – 27, outbound – 17, hybrid – 16. This formula will give you an exact sense of the size the sales development organization needs to be. With that in mind, ensure there are enough sales reps to effectively work the opportunities coming from the sales development organization, and you should have a finely-tuned sales engine to drive high growth in your organization.
Learn more about SDR – sales rep ratios, and other strategies for high growth at our webinar Wednesday 2/11. Sign up here.
About the author: Bryan Gonzalez is the Sales Development Analyst at TOPO. He has helped two high-growth companies launch their SDR teams and define the role and strategy. With TOPO, he is excited to help others design, build, and optimize their own sales development organizations to accelerate their growth. He has been an SDR, he knows the grind. Follow Bryan on Twitter.