Paying SDRs $100K and Beyond

In their recent webinar, 'Is the SDR Model Broken?’, Collin Cadmus and Aaron Ross discussed transforming the SDR role from a waypoint into a profession. Increasing SDR compensation would go a long way toward making the job more respectable and more desirable, leading to longer tenure in the role.

Current State

SDR compensation hovers around $70K with a $50K base and $20K variable (though San Francisco and New York are a bit higher). If one is being honest, it takes SDRs 6 to 9 months to consistently meet or exceed the average outbound SQO (meeting held and marked as qualified by AE) target of10/month. The typical SDR stays in role for about 18 months.

Let’s do some quick math to determine ROI.

Revenue over 18 months:

• Assume SDR productivity increases by 1 SQO per month until month 12 and then stabilized. So, 1 in month 1, 2 in month 2, … , 12 in month 12, 12 in month 13, …. 
• Over 18 months, the SDR will produce 150 SQOs with 78 in year 1 and and 72 in the remaining 6 months.
• With a benchmark 20% win rate and an ARR/deal of $25K, total ARR produced is $750K.

Cost over 18 months:

• SDR comp plans rarely take ramp into account. Hence, the SDR starts with an annual quota of 120 (12 months times 10 SQOs per month). With $20K variable comp, SDRs earn $167/SQO (= $20K/120).
• Hence, year 1 comp is $50K base + ($167 * 78) = $63K. Comp in the remaining 6 months is ($50K x 0.5) + ($167 x 72) = $37K.
• So, total cost over 18 months is $100K. (Yes, I’ve excluded recruiting, training, managing, and technology/tools costs).

The SDR “tax” on sales is therefore 13.3% (=$100K/$750K).

A Better Future State

Let’s start by assuming labor market efficiency. This means both employers and employees know and accept that SDRs will get paid $63K in year 1 for producing 78 SQOs. Given that, I prefer a more transparent model with a $63K OTE and a target of 6.5 SQOs per month. I prefer to keep the base at $50K in which the $13K variable comp would be paid at $167/SQO.

One could instead keep the VC at 28% of OTE which would yield a $45K base and $18K variable paid at $230/SQO. I don’t like this for two reasons. One, candidates care deeply about base pay so one will tend to hire lower quality reps. Two, SDRs will not appreciate getting paid less per SQO in year 2; moreover, different rates make comp admin much more difficult.

The magic comes in the fact that the organization pays 13.3% of revenue to SDRs.

If an SDR stayed in their job in year 2, they would produce 144 SQOs. Using the same 20% win rate and $25K ARR, the SDR impacts $720K of revenue.

Hence, we can pay the SDR $96K in year 2 with a base of $72K and a VC of $24K. Again, VC pays out at $167/SQO but with a target of 12/month.

In Summary

With some pretty basic assumptions, we found a way to get close to $100K for SDRs. If one factors in lost opportunity, recruiting costs, and training costs, the case higher SDR OTE is an easy one to make.

Other ways SDR pay can increase to well over $100K:

• Faster ramp
• Higher average SQO production at full productivity
• Higher win rate
• Higher ARR