This email was sent 4th of August 2022
I often get asked how many SDRs a company needs for every AE? And I’m surprised it’s still being asked by many folks out there.
I’ve struggled with this question for years, making horrible mistakes along the way.
The truth is if you believe that there is a magic ratio out there, then you’re doing it wrong.
I wish it were that simple.
But if you’re reading this and looking for some kind of answers, I’m going to put my professor hat on go over some simple formulas to give you somewhere to start, and hopefully get you out of this headcount-based thinking.
Let me explain.
All revenue streams will behave differently. Outbound behaves differently from inbound. Inbound is different from partners.
Each stream might also vastly differ depending on the market they operate in.
These variables and others make it hard to create a one-size-fits-all ratio.
Instead change your mind model and look at everything through the lens of opportunity demand vs supply.
Start by stacking all of your quotas in one, and divide it by your average contract value (ACV). The number you come out with is how many deals you need to hit your target.
AE Quotas/ACV = Deals
Divide that by your conversion rate from opportunity to close, and now you know how many opportunities you need to create.
Deals/Conversion rate = Opps you need to create
Like Goldilocks, there is a sweet spot for the amount of opportunities you deliver.
Not enough and you’ll soon have a grumpy AE team wondering if they can even make money here.
Too many and your AE team might become less hungry which will lead to a drop in your conversion rate.
Now that you have the amount of opportunities you need, let’s talk about where those opportunities are coming from.
What’s the breakdown between your inbound and outbound? If you’re using a heavily outbound-focused model, then you’ll need more SDRs to create opportunities.
Opps needed – Inbound opps = Outbound Opps needed
You’re also going to have to ask yourself how many Opps an SDR can realistically create.
Now that you have that number, divide the amount of opps you need by how many one SDR should be able to supply, and you’ll come out with how many SDRs you need for your model.
Opps you need/Opps an SDR creates = How many SDRs you need
Now, for some this will end up being a 2:1 ratio. For others, it might be a 1:3 ratio.
Simple, right? I know.
While this is a great starting point, these numbers only make sense in a vacuum.
In reality, you also need to talk about things like hiring, ramp-up, sales cycles, and turnover.
And what if you’re scaling dramatically? The amount of opportunities you need in August will not be the same as in September.
I think the best way to do it is to model it out.
At the very least, I hope this letter has gotten you to leave this magic ratio fantasy world.
If you’ve gotten through this letter and you’re lost and still need help figuring it out, feel free to reach out. I’d be happy to chat.
Co-founder & CEO
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